China, and the US and Canada, has much more space than the UK and many more cities with high performing economies. These give people more options to find higher quality work and/or lower cost housing.
I feel like... if we didn't already have a bunch of people saying "things were better ten years ago" with an implied "[when i was ten years younger]" we probably wouldn't be hunting for explanations as to why this was the case with all these charts
and if we just, like, looked at these charts without that context, we probably wouldn't draw the conclusion that things are getting noticeably worse at an abnormal rate
I have a sneaking suspicion that what's going on is ordinary Great Stagnation stuff. But when articles get written about France or Uganda or America declining economically, it feels like dry economic debate, whereas when articles get written about the UK declining economically, the articles become aligned along political lines, and the headline must either specifically blame Brexit, or specifically exonerate Brexit, and so it feels like a bigger question than it actually is. Or at least, a bigger question than other similar questions we might ask of other countries and other periods of time.
Essentially I think there's something related to privileging the hypothesis going on here.
I don't have a very high confidence on this, it's more of a nagging feeling
edit: also, the image displays an american flag burning, whereas the british flag is less on fire. i am upset about this.
Somewhat related, and I can't source anything to back this up, but all else equal the UK does seem to be the focus of more complaints on any given topic. So the same stagnation is more of a meme than in the EU.
Part of it is probably being anglophone makes it easier to scrutinize; as well as some post-colonial schadenfreude (definitely true of Australia & NZ but I can't speak for the US); not to mention that Brits (to their credit) are happy to moan and not particularly afraid of losing face.
I expect that France is being criticized by the french, and Germany by the germans. And they are likely complaining about the same things. But as a participant in the english-language debate, you are not hearing those complaints.
Much of the hand-wringing & complaints come from outside the UK though, which is hard to imagine at the same scale for France & Germany as they don't have a same-language superpower like the UK does with the US.
True. Another factor is the weird tendency to treat political parties in different countries that are in the same relative position in the political spectrum as if they are in the same absolute position. So the Democrats emphasis the supposed failures of the Tories, even though the Tories are likely closer to the Democrats on most issues than Labor.
Yeah - there is not really a significant change. The UK did about as well as the countries to which it historically compared itself. Europe as a whole is stagnating. But the Wrong People are in charge, so you get much wailing and weeping.
You see the same thing in the US - we have a combination of:
Calling it a historically high employment to population ratio is very misleading, the US shifted from a mostly male working population to a male+female population from the 1950s to through the 1990s with the peak in 1995. The last 15 years have been lower in almost every year than any one year from 1990 to 2007. So yeah, compared to before women were fully integrated into the workforce the ratio is high, but the last 15 years were substantially lower than the previous 17. That is a legitimate feeling of decline.
Further you only link 'prime aged' not the actual employment to population ratio- which has shifted a ton more, and not entirely with just boomer retirement as it peaks in 2000 at 65% and drops to 58% in 2010- and those are the years that the oldest boomers were 55 going to 65 and the average boomer was more like 45 going to 55.
I chose the 25-54 series because the US is much older now than in 2000. Most of the decline in the overall employment to population ratio is due to aging. Limiting the comparison to prime age workers largely (but not completely) compensates for that change.
This is false, the employment to population ration dropped sharply from 2000-2010 but the % of people who were 65+ in the US barely changed from 1990-2010
Not only that but the % of the population that was 65+ was INCREASING from 1980-1990, which was a period of increasing employment to population ratio (and also increasing from 1950 to 1990, the whole time with increasing EtP).
Demographers have been telling this story for years, and its an outright falsehood- marginal workers have been getting squeezed and those marginal workers are 55-65 and 18-24, so they get dropped from 'prime age' (that's what prime age means- ie non prime age = marginal = first people on the block when things get worse).
Some over 55s left the workforce after covid. But this just means that they are not seeking jobs. Which probably contributes to the amazingly low unemployment rate.
Older people work less is not the same as 'older people work a consistent amount'. Your link shows that from 1994 to 2008 55+ workers lfpr went from 30% to 40%. That is a 14 year uptrend which ended in the spring of 2009 and flat lined thereafter. Possible a coincidence that it coincided with the end of the '08 recession. Meanwhile labor force participation for 16-19 went from 52% in 2000 to under 35% in 2010, and lfpr for 20-24 years olds went from about 78% to 71% over the same time span.
The employment to population rate collapsed from 2000 to 2008 and this was emphatically not due to the aging of the us worker- because at the time the % of the population that was 65+ was almost flat, and the lfpr of 55+ year olds increased by a large amount and the lfpr of 16-24 year olds dropped precipitously.
Real median wages is also misleading, as it shifts heavily with demographic changes. If you have a large number of young workers entering the workforce (or previously unemployed persons) then you get falling real wages as the entrants are below the median in earning power, but on net you have real per capital wages rising. In the linked graph we see 1979 as the high water mark for real median wages until 1999. So either everyone is wrong about 1980-2000 being a period of prosperity or real median wages is a poor way of looking at things- hint its the latter.
Put together we have a smaller percentage of the population working now than in 2000, and older workers on average than in 2000, so fewer people making a larger portion of the income- in short a depression for people not in a better demographic situation.
And search for table p-8. This has median wages in 2021 dollars broken out by sex and age range. Generally speaking, the male 2021 median wages were comparable to the male 2000 wages. Wages sucked after the dot com bubble collapsed in 2000 and after the great recession. But they have generally recovered.
Yes- and if you lose 10% of your income for 10 year and then 'get back to even' for 1 year that is what feels like, and fit the definition of, a depression. You have to integrate to get to total losses, otherwise making $100,000 a year at age 30, then being unemployed for 10 years and then landing a $150,000 a year job at 40 would be just toats fine with everyone. Such a person isn't actually making 50% more than they were 10 years ago, they made $1.25 million dollars less over 10 years than they expected to.
Endpoint analysis is entirely incorrect in this application.
In several ways "things were better ten years ago" is a true statement, though it sure isn't a global truth. At that point Moore's law was in full swing, and several kinds of prediction were easier.
For the equivalent at the current time we need to guess where AI is going. We don't really know it's capabilities, how it will be used, whether it will threaten us (it will...if only by taking previously reliable jobs), etc. So it's not just "things were better when I was younger", it's also "things have become less predictable". (OTOH, ten years ago things didn't *feel* all that predictable, so this my just be hindsight.)
Note: I'm intentionally leaving out lots of contentious issues. The tech one seems (to me) like something everyone will agree with.
As for Britain, I don't think we've yet seen the true costs of BrExit. And I don't really buy the explanations of the powerful folk who were in favor of it as to *why* they were in favor of it. I do think it plausible that some of the financial types pushed it to set Britain up as a place to whitewash dirty money. Other groups has other motivations, many of them equally disreputable, but not in conflict. It was clearly pushed by lots of people who thought that blatant lies were a fine argument...so I also doubt the rest of their ethics/morality/honesty. This may mean I tend to believe disreputable stories about them without sufficient evidence.
> I don't think we've yet seen the true costs of BrExit.
Because? It's happened, it made no difference. Remember there were two predicted "doom points":
1. The vote itself. The Treasury i.e. the British government predicted this would cause a massive recession with ~800,000 job losses due to greater uncertainty. Reverse happened, nobody GAF and the economy grew, unemployment fell. Experts had egg on face, as always, nobody in elite media was willing to recognize this or engage with it outside maybe the Telegraph.
2. Actually leaving. No obvious impact, possibly drowned by lockdown effects. Some studies suggest exports to the EU fell, but then rebounded back to prior levels in less than a year. Very unlikely to be noticeable by anyone.
Leaving the EU was never going to have a big impact on the UK because the supposed benefits were largely fake. EU never cared to harmonize the services market, where the UK was strong, it only cared about goods, where France/Germany are strong. So the benefits were largely one way. France/Germany got the ability to beat British companies, the reverse was much less true. Even rules that were presented as making services trade easier were fake, see how the EU treats "equivalence" in financial law. It has nothing to do with what the laws of each country say, it's a purely political favor to be granted and revoked at will.
In contrast the GFC wrecked everything. All the graphs are very clear on that point. 2008 is where things go off the rails. Bad event, bad response.
As for lying, lol, this is exactly the ideological nonsense that leads to everything in Britain being blamed on Brexit. Remember that the population were told by the Prime Minister himself that he'd levy an absolutely massive emergency tax if Leave won immediately impoverishing everyone. Something like £15B in tax rises and £15B in spending cuts. This threat seemed credible because he also stated clear as day he wouldn't resign if Remain lost. Fortunately the public correctly decided he was a lying liar, Remain lost and he immediately resigned. No emergency tax, nor was one necessary.
That was just one of many lies told by Remain campaigners, but was BY FAR the most important and devastating. Nothing else even comes close, anything else said by either side was just irrelevant compared to that. The whole concept of a referendum makes no sense if the government plans to financially punish the population if it doesn't get the outcome it wants.
> Britain seems to handled inflation reduction very badly.
Keep in mind that they have over 2.5 trillion reasons to do so. With a national debt over 100% of GDP ( https://en.wikipedia.org/wiki/United_Kingdom_national_debt ) policymakers have a strong incentive to screw citizens over by pushing for high-inflation policies.
USA, France, and Canada are all between 110% and 130% of GDP, UK is just below 100% while Italy is at 150%, while Germany is off the charts low and Japan is off the charts high.
This is true. Debt-to-GDP ratios are all over the place. Now plot debt-to-GDP ratio on one axis and pro-inflation policy on the other and see what the graph looks like.
I didn't say "inflation rate," I said "pro-inflation policy." Japan's government has been desperately trying for decades now to generate inflation, and failing.
Japan's debt is a-typical in that it's being held mostly by the population. Lowering it through inflation screws over your own people, so it was never going to be the first choice.
I think the answer to that is political - British politics in general, and the press in particular, are very concerned with looking 'sensible' and 'adult', which makes them push for things like austerity, privatization, and debt management at higher levels/at less provocation than the other countries listed.
... is my vague impression, as someone with little direct experience in the topic.
Debt has to be rolled over though. So as a bond buyer, if you expect the government to inflate the currency, you’re going to demand higher interest to compensate. Inflation solves some debtors’ problems, but maybe not the government’s? And indeed the UK government is taking so much flak about the “cost of living crisis”, it’s hard to believe they have any incentive to let inflation run high.
As far as I understand it, they aren't required to hold government bonds, but instead that government bonds are considered extra-safe so therefore can hold less capital than if they invested elsewhere (which is what led to some recent bank problems).
Not saying they aren't advantaged, but advantaged is different than required.
(Unless I'm missing something, in which case I'd appreciate the correction.)
Fair point, but remember that famous remark “if I die I want to come back as the bond market, you can intimidate everybody?” Legal requirements only work for local financial institutions, which is a lot if you’re the US, less if you’re the UK, less still for say Turkey.
> as a bond buyer, if you expect the government to inflate the currency, you’re going to demand higher interest to compensate
You'd think so, wouldn't you? But that's not what we've seen for the past 30 years. As debt gets worse, rates consistently go lower, lower, lower. (Recent corrections to deal with an inflation spike that got a little bit *too* successful notwithstanding. Look for policy makers to start driving rates back down to 0 as soon as it's politically feasible.)
The selected comments were a decent overview from a statistical perspective, but they all missed a key feature: the tapering off of North Sea energy - both oil and natural gas.
A major reason for the "recovery" of Thatcher's era was the development of the North Sea fields; the decline of same is intuitively going to cause reversion to pre-Thatcher mean.
Note how trade balance was fairly even until 1995 when it fell off a cliff.
The UK's need to import food and pretty much everything, was offset by energy exports until the North Sea fields started tapering off. Unlike all the big EU nations, the UK imports literally half of its food - 45%+ vs. high single digits to teens for France, Germany, Netherlands etc.
Food is not something you can work around; but high percentages of food imports are ok if you have energy exports to offset but the North Sea declines flipped the equation - the UK now imports energy in the teens percentage on top of the 45%+ food imports.
Net net: the UK is f'd - especially since they are so keen to piss off the largest nearby source of cheap energy (Russia) who also incidentally is the largest wheat and fertilizer exporter in the world.
Nice comment. Does the UK have other sources of fossil fuels (a la US’s shale boom) or prospects in green energy sources to offset this energy trade deficit?
However there are big constraints in terms of internal transmission capacity that currently aren't anywhere near being solved due to the terrible planning model & worse central governance in the UK, without which the benefits of this will not be properly realised. It's absolutely possible for the UK to become a net energy exporter but it will require some actual political will & ability, which has been in short supply for some time.
A flat contradiction with no supporting argument doesn't add much to the conversation, especially when the previous comment links a source and you don't.
Unfortunately the UK grid has inadequate capacity to transport electricity from wind farms and pumped hydro storage in Scotland to South England where most of the demand lies.
Planning is really not the British government’s forte, like when they allowed British Gas to shut down 40% of its storage capacity in 2017 because the market would provide.
I, er... may not have been being absolutely 100% serious..
(Though I did really enjoy imagining some sort of Solarpunk infrastructure that carries wind in a pipeline to a wind refinery, instead of having the huge enormous Martian-tripod-looking-things sticking up out of the sea...)
People do keep pushing the idea of using renewables to produce green hydrogen and shipping that via pipeline rather than shipping the electricity directly. It's easier to buffer that way, but I'll believe it when I see it.
UK has wind but wind is a terrible power source. It is intermittent and therefore requires 100% backup; it is also low capacity factor meaning 2 units of wind generation are needed to replace 1 unit of fossil fuel, even on an annual average basis. The impact of this is too much wind at frequent periods when that power is not wanted as well as too little wind on hour, day, week and even multi-month time scales.
This link, for example, shows the growing mountain of cash being spent to get rid of too much wind electricity per year. It has averaged well over 200 million GBP per year for the past 5 years: https://www.ref.org.uk/constraints/index.php?tab=yr
Note I am not saying that there is *no* role for wind generation; what I am saying is that the notion of wind electricity generation being a panacea or path to Net Zero is a fantasy.
Yep, and other than pumped hydro - it is very possible that there won't ever be one.
The issues are cost and loss.
For lithium or other batteries - there are simply not enough minerals to ever achieve the scale necessary unless 10x or greater energy density improvements occur. But 10x or more energy density improvements will yield densities of 6x that of gunpowder. Just how safe will gigawatt-hour scale battery installs with 6x gunpowder energy density be?
For potential energy/gravity, compressed air, heat, etc etc - the problem is both scale and loss. US electricity consumption is around the 4 trillion kWh = 4 billion MWh range; this means storing 1 day of US electricity consumption would require 11 million MWh of storage.
To put this in perspective - that means 1 day of US electricity consumption storage is equal to the amount of electricity used by all of New York City in a year, multiplied by roughly 1000.
How much rock would have to be lifted to equal that amount of electricity? Air compressed? Salts or whatever heated up and then the heat recovered?
This seems to me to be a scale problem - not a technology problem per se.
> To put this in perspective - that means 1 day of US electricity consumption storage is equal to the amount of electricity used by all of New York City in a year, multiplied by roughly 1000.
You miscalculated something. NYC is ~2.5% of the US population. So 1 day of US electricity usage is ~40 days of NYC electricity usage (or somewhat more or less, if New Yorkers' energy usage is different from the US average), not 365000 days.
Scotland has tremendous pumped hydro potential like the Coire Glas project that by itself can store 4 hours of the entire UK’s peak demand.
Sometimes I wonder if by its decisions like not building adequate grid interchange between Scotland and England the UK government is demonstrating a belief Scottish independence is a foregone conclusion,.
> For lithium or other batteries - there are simply not enough minerals to ever achieve the scale necessary unless 10x or greater energy density improvements occur.
That implies that LiFePO4 chemistry would give about 2kWh/kgLi. If we devote 10% of the world's proven Lithium reserves to grid-storage batteries, that implies that we would be able to construct battery systems capable of holding (90e6 tons x 1e3 kg/ton x 0.1 (usage ratio) x 2000 wH/kg = ) 18TWh of energy.
Thus, using 10% of the world's proven Lithium reserves on current Lithium battery technology would deliver energy storage equivalent to about 6.5 hours of *the world's electrical energy consumption*.
On top of this, we can also consider other points along the weight/capacity tradeoff curve such as flow batteries, which are heavy and immobile, thus not competing with batteries for portable/transport use.
> This seems to me to be a scale problem - not a technology problem per se.
I think it's more of a policy problem. Grid storage makes financial sense when wholesale energy prices show wide swings in short intervals (minutes for battery smoothing to weeks for pumped hydro) over a long period (years) to justify construction costs.
This doesn't happen with conventional (fossil/nuclear/hydro) electricity, so it depends on large-scale renewable adoption that can make peak-production energy nearly free. However, people are justifiably leery of introducing that kind of price volatility, so there's no direct profit incentive to build out large-scale battery storage.
There are lots of alternatives to pumped hydro. Unfortunately they tend to be either rather site specific or costly. Even weights on a string can be made to work, if you put enough design effort into it. But building it won't be cheap, and there are likely to be lots of maintenance costs.
OTOH, check out "flow batteries", which sort of combine pumped hydro with a battery, and the battery stores the power. But they're only useful at an industrial scale. I think this means they are usually ignored, but I'm not certain.
Wind doesn't require 100% backup if you distribute it out broadly enough (unlike solar, which literally doesn't work at night), but it's definitely intermittent and not reliable as baseload power.
The total value of electricity produced by wind in the UK is ~4.8 billion GBP. 200 million spent in power balancing is about 1/24th of that. As such, wind is a huge net positive.
There was not zero wind across the entire continent, as you are now asserting.
Wind, if broadly distributed, will produce at least some energy. But it's far from 100%. You don't need 100% backup, but you do need sufficient backup to deal with a very significant drop-off in wind to the minimum level (99.999th percentile wind).
WRT: Curtailment - what is the price of wind electricity with curtailment in mind? This is the most important question. If you are producing electricity below the cost of other power sources, then it's still worth building wind power, even if you end up curtailing it. If you're not, then it isn't.
They're still building it precisely because the threshold at which wind power ceases to be economical has not been reached yet.
Green energy sources are, sadly, primarily a net loss in terms of trade - because the vast majority of wind and solar PV is manufactured in China. The sad reality is that there is a direct link between unusually increasing electricity prices and wind/solar PV penetration.
As for other sources: there is supposed to be at least some fracking fossil fuels available (principally natural gas) but it was prohibited from being exploited, by law, until last year.
But this is not as much as it appears. EQT, the largest US frackers - controls 23,500 bcm in natural gas vs. US annual consumption of 827 bcm and UK annual consumption of 72 bcm.
The UK has onshore reserves it could frack in the same way the US has done. Green campaigners have prevented that from happening, so the UK imports instead.
The debasement of currency/financialization of economies certainly occurred in the UK, but again that's somewhat orthogonal to the real world economy's needs.
I say somewhat because short term imbalances can be papered over, but long term imbalances cannot.
This comment seems to presume that being a net exporter is a good thing, and a net importer is a bad thing, but my understanding of the mainstream economics position on this is that it doesn't matter
Importing food means you cannot feed yourself otherwise.
The mainstream junk economics position is that its all currency, but reality and real world economics means a heavy dependence on food imports is a serious economic vulnerability and weakness for any nation.
Imports of iPhones and Louis Vuitton can be foregone in bad times, but food cannot.
I think he means to point to the more general claim that imported food is substitutable by domestic food production for the UK without losing meaningfully much in national welfare or being threatened in its food security, especially given time. Not sure, where the 45% figure comes from (the discussion above is too long for me). Is that 45% is monetary value of food consumed or is that of consumed calories? The latter would be a lot more concerning. Anyway, the claim sounds plausible to me, but I'd defer to someone with stronger opinions on potatoes, herrings and bananas :)
"The UK imports around 46 percent of the total food it consumes and is reliant on both imports and its agricultural sector to feed its population and drive economic growth. "
That seems pretty conclusive that the food being imported is not luxury but rather core requirement.
This is the clearest Mott-and-Bailey argument I have ever had personally directed at me, so well done.
Whether or not you are creating a serious point of failure for yourself in some hypothetical future is a _completely_ different question than whether or not an import/export surplus/deficit has negative impacts in day-to-day operations. Your comment made it very clear that you think that having an export deficit is, in and of itself, with no future issue needed, a negative economic situation and is in fact the _cause_ of the slowdown). You are now claiming that, depending on what it is you are importing, if things go a specific way in the future, that can be different levels of bad. These two claims are completely unrelated to each other.
It might be true that if the UK is importing lots of food, that could create a crises under certain changes in international politics or something. That has no bearing whatsoever on their _current_ economic climate.
I noted that the UK has an overall trade deficit and furthermore that this trade deficit is significantly due to its need to import nearly half of its food conception.
In what universe is this not a risk?
Note I have never said that this would result in Mad Max; I thought it was intuitively obvious that such a massive level of imports of critical food would expose the UK economy to any number of risks ranging from the ongoing trade deficits and their effects on currency strength, to cash flow risks from increases in food prices/food supply decreases, to geopolitical vulnerability due to major food exporters changing policies or enacting economic warfare.
Clearly I did need to spell this out.
As for your "hypothetical future" - the situation in the UK speaks for itself.
This is not a nation moving from triumph to triumph - and this situation existed long before the spikes in energy and food due to the Ukraine situation.
Clearly there is some structural factor at work. Nor can this be ascribed to Brexit either since the situation also existed prior to Brexit.
So whatever your apparent desire to assign my statements of fact to "Mott and Bailey" - I never made a single policy recommendation. All I wrote are simple facts.
Perhaps you can address the facts as opposed to attempt to assign motives or theories.
How exactly does having structural trade deficits plus dependence on massive food imports, not a structural issue for the UK?
In case anyone else reading this exchange is curious:
A motte and Bailey argument is where one makes an initially expansive claim (the bailey), but then, when challenged, retreats to a much more limited (and defensible) version of the claim (the motte).
In this case, the bailey is "trade deficits cause economic decline".
>A major reason for the "recovery" of Thatcher's era was the development of the North Sea fields; the decline of same is intuitively going to cause reversion to pre-Thatcher mean.
The motte is "not producing certain kinds of goods could, under the right circumstances, create a crisis".
The second one is definitely true, but has _nothing to do_ with the first one, other than they both involve trade deficits. The economic consensus is that a trade deficit, of _any kind_ does not, under normal trading conditions (that last part is important, please don't ignore it), cause economic decline and is not a problem at all. Yes, it _could_ absolutely become a problem if you import all your food and then your import partners decide to cut you off (or some similar such disruption in trade occurs). But that has no connection to whether you will have an economic decline prior to the point where the disruption occurs. Whether or not the UK is in a good long term strategic trading position is unrelated to the current discussion of "have they had economic decline relative to peers in the past several years". You have not once tried to defend the claim that a trade deficit could have caused that decline. Instead you are focusing on the much more limited (and unrelated claim) about potential future issues.
While you are generally correct in what you're saying, a trade deficit is not a problem in and of itself, but it is an important signal of your productivity. You are producing fewer things (or things of less value) that others want, and others are producing more things (or more valuable things) that you want. You are financing this deficit by taking on debt. If you invest wisely, or grow your productivity fast, this is no problem! But if not, a trade deficit can signal very big problems.
you state that " The economic consensus is that a trade deficit, of _any kind_ does not, under normal trading conditions (that last part is important, please don't ignore it), cause economic decline and is not a problem at all."
This is utterly wrong both in describing theory and in practice.
Let's look at Sri Lanka as one example. This is a nation with a massive trade deficit.
Are you seriously going to argue that this trade deficit - which is significantly due to imports of fertilizer for their tea plantations - was not a problem for that economy even before its ill-fated attempt to "go green" and stop importing fertilizer?
There is only one nation which can ignore trade deficits because it owns the international trade currency - the USD.
Any other nation with a trade deficit must always buy US dollars in order to fund its net deficit - this constitutes am ongoing negative impact on the economy exactly as if said nation had a large US dollar debt.
If the economy in question is sufficiently wealthy via say, foreign net investments like Japan, a trade deficit can be tolerated but it is disingenuous in the extreme to say that "a trade deficit, of _any kind_ does not, under normal trading conditions (that last part is important, please don't ignore it), cause economic decline and is not a problem at all." if you are not the US.
So thanks again for trying to employ argument tactics - but your core argument is simply flawed.
Had you responded that the trade deficit - by itself - might not be the cause of UK's decline because of some other offsetting factor like net foreign investment income, that would be at least arguable but relying on a "one size fits all" economic dogma sentence is just sad.
As the other person said, whether or not it becomes a point of failure in the future has no bearing on whether it is a source of slow down at present. And in fact, if Britain tried to reduce its dependence on food imports, it would be much more likely to experience a further slowdown, given that it would be trying to import substitute and put resources into a very low productivity activity (agriculture)
The point of failure is not the only source of problems; the spend itself is a problem especially since the UK has an overall trade deficit.
Even mainstream economics notes that trade deficits for nations not owning the international reserve currency constitute a burden on the economy of the deficit nation.
Not to mention most of that windfall was extracted from Scotland and spent on London and South England, thus fueling resentment and an independence movement there.
Nah, that's fantasy politics. SNP hardly care about oil, Scottish independence movement is first and foremost about ideology. They're more left wing than the rest of the UK and wish they could have a more left wing state, unconstrained by what the rest of the country wants. To the extent they talk about oil it's "if only we'd kept it all for ourselves we could have had a socialist utopia" which is (a) irrelevant, as it's not the 1980s anymore and (b) stupid because the oil money in the 80s was spent bailing the UK out of exactly that kind of socialist meltdown.
Nowadays oil money is irrelevant. Tax income from oil&gas is very volatile, swinging from only £300M in 2020 to more like £2.6B in 2021/2022 but is dwarfed by the English subsidy to Scotland which is more like £41B.
But Scottish politics has long been deeply unserious about anything economic.
If I understand correctly (which I may not), the UK is especially trapped into high energy prices in this circumstance because of a policy that requires alternative energy sources to charge the same amount as natural gas providers, meaning that when gas gets more expensive so does every other energy source.
But in general, one of the most egregious economic distortions introduced by legislation prejudicing solar PV and wind over other sources is the "first to sell".
First to sell means if solar PV or wind is available, the grid must buy it to the exclusion of other sources i.e. fossil fuel or nuclear.
This is ridiculous because it is literally rewarding unreliable electricity generators at the expense of the reliable ones. For example: if there is an oversupply of electricity situation - the solar PV or wind gets bought by the grid but the "excess" supply of electricity, which is now literally negative value, must be absorbed by say nuclear power plants that can't turn off/of rapidly. Or in other words: being reliable is penalized.
It is certainly possible that the UK has passed laws mandating that solar PV/wind get the best price available on the market - that would be another form of massive economic dislocation since free markets supposedly function by each producer selling at their own cost + margin - as opposed to selling at the worst producer's cost + margin.
The problem is that the negative outcomes isn't just Ukrainians dying.
Massive inflation in the West, dedollarization, the destruction of US and EU military reputation, the pushing together of Russia and China (and the ROW) ever closer - these are all huge negative consequences.
Inflation was not caused by the Ukraine war, it was caused by COVID disruptions to supply chains and governments handing out massive amounts of money, as well as irresponsible tax cuts. Inflation in the US peaked in mid 2022 and has been declining since; and is now at 2021 levels. The inflation increase began more than a year prior to the 2022 invasion of Ukraine.
This is a Russian propaganda talking point which is trivially dismissed within a minute of looking at the data.
Dedollarization is not really meaningful and is going to face the exact same problems it always has - the reason why people use the USD is not because they love the US, it's because their own countries' ability to manage their economies is garbage.
The US and EU military reputation has gotten stronger, not weakened; indeed, the country that has looked extremely weak as a result of this war is Russia, which now looks like a third world state. This is not really news to those who have been paying attention, but Russia at this point basically has nothing but nuclear weapons - its conventional military has been exposed as being quite poor. Indeed, this has been known for some time now, but it has been made clear to everyone that Russia is very weak and that NATO could roll over the country if they wanted to, and the only thing that is stopping them from doing so is Russia's nukes - which there are doubts about now, too, given the decrepit and corrupt state of the rest of their military.
The axis states of Russia and PRC are together for the same reason as Germany and Japan during WWII - they are weak and vulnerable while their enemies are all allied. The reality is that they are in even worse straits than the WWII Axis, though, because China is heavily dependent on the West economically and Russia is extremely poor. This puts them in a very unfavorable position militarily where angering the Allies too much will result in them being summarily destroyed.
The war in Ukraine has resulted in further expansion of NATO, and increased interest in East Asia of creating more NATO-like structures, which China is freaking out about.
The Russian Empire and PRC are legacy states that should have been ended after WWII.
China is now much more leery of invading Taiwan, because the West ended up showing it has teeth, while Russia is now setting its population and economy on fire in the long term to try and seize land in Ukraine.
Appeasing dictators does not work. Never has, never will.
The present situation in Ukraine has told China that its own expansionist plans will face resistance.
No, this is a "reliability, affordability, carbon neutrality" argument.
Every form of electricity generation has its good and bad points, or in other words, there are tradeoffs no matter what you decide to do as a society.
If the West desires to achieve carbon neutrality via present and near future intermittent power generation methods, the results will certainly be unreliability and likely will be unaffordability.
For example: for all the LCOE nonsense - the reality is that there is a very clear correlation between high electricity prices and increasing intermittent generation.
The 2 exceptions to this, in the US, have been Hawaii - because they still literally burn oil to generate electricity due to the enormous US Navy base there, and Texas because of its abundant fracked natural gas. Texas just made huge strides (sarc) to join the alternative energy curve when natural gas prices spiked last year, thus demonstrating that their relatively low electricity price increases were not because of their huge solar PV and wind installs, but because of fracking dropping natural gas prices to historic lows.
In addition - it is increasingly obvious that there are severe mineral constraints to alternative energy adoption at scale. This is most pronounced in the electric vehicle side but exists for all sectors even outside the alternative energy space.
The mining industry is coming to the awareness that EVs and storage of solar PV and wind are the greatest boons to demand for mined metals and minerals since pretty much the advent of the industrial age.
I just went through an exercise looking at how much lead would be required to store 1% of the world's electricity consumption in lead acid batteries - it was something like 4.3 million tons of lead vs. 4.9 million tons of annual world production of lead. LOL.
The same person then put forward an iron/iron rust solution that required 1/2 to 1/3 acre to store 1 MWh of electricity; again doing the math, it comes out to tens of millions of acres of this "revolutionary concept" to store 1% of US electricity consumption and god knows how many millions of tons of iron.
The point of this is to understand the true scale of what is actually necessary to achieve whatever stated goals are.
Magical thinking based on ignorance is not going to get the job done.
No, it is a "solar PV and wind as a magical fix for climate and replacement for existing power generation is a load of bullshit" argument.
Ultimately every society should make its own decisions - if the decision is to devolve to 3rd world power reliability with 1st world pricing, then so be it.
If the goal is rapid de-carbonization - nuclear is the only way that is realistically going to provide the reliable stationary in the quantities needed in the next 10 years. This means building multiple nuclear power plants per month, worldwide, for most of those 10 years.
If de-carbonization is not so urgent - put real money with real world requirements into research and development of technologies that can do what nuclear can do now but without the radiation.
If affordability is the issue, put in true progressive pricing along the lines of: using 10x more power than regional average per capita will cost 10^2 = 100 times the cost. Combine this with mandates to force greater density.
Of course, in reality what we will get is a rogue's gallery of special interests and posturing on all sides, resulting in none of the above.
Russia has been a significant drain on the Western economy due to its military aggression for a long time (since they were one of the countries that started WWII), so destroying it is a pretty big net long-term positive.
I wonder how much of it the discussion is that people are actually paying attention to our economics more after the Liz Truss fiasco, and noticing a lot of Brits are very unhappy when it comes yo the economy and their incomes (eg huge strikes in healthcare and other sectors).
Potentially partly fueled by long periods of austerity and the feeling that it didn't actually fix anything, add on COVID and high inflation and people finally want stuff back but huge rise in debt-to-GDP and Liz Truss mean it's very difficult for the government to fix anything?
The tragedy of Liz Truss is that she was more or less correct in her diagnosis of the situation. She was also correct when she recently criticised the media for not understanding her goals. There is too much superficiality in the media and government. Unfortunately Truss totally failed at preparing a plan and buggered us twice
The only data point I have on this topic is that engineers in the UK make a lot less than equivalent engineers in the US. To the extent that the US economic and productivity growth is in some way attributable to the tech sector, that matters. Fewer talented people would be attracted to work in the technology sector, fewer smart people from around the former Empire would be tempted to move to the UK to work in technology, and the smartest folks in the UK will be tempted to move to the US. (I'm assuming that a UK > US immigration path is relatively easy, and I definitely meet a lot of people from the UK in Silicon Valley.)
I don't know if this is material or anecdotal, though.
A UK>US immigration path is not easy unless you're exceptional or wealthy or have a company willing to sponsor you. SV types will have at least one of those 3 (probably 2)
Depends on the job. I know several employees of multinationals who have managed it, because their employer successfully argued to USCIS that they had essential organisational knowledge, and thus the choice was either they do the job from London paying UK taxes, or from the US paying US taxes: ie they would not be taking a job away from an American.
Basically, you can be rich, you can get an H1 visa (employment sponsor, H1A is globally exceptional, H1B is when there aren't enough Americans available with skills), you can marry or be related to an American, you can be a student at an American university, or you can be internally transferred within a multinational. There are a few special cases like actors and sports people as well.
I’d say it’s pretty simple, though it’s most often very time-consuming and expensive.
You go to a US university on an F-1 visa, typically paying full sticker price. Then you work for up to 3 years (if you studied STEM) in the US with the F-1 OPT program. During these 3 years, your employer can sponsor you for a green card right away (if you’re not originally from India or China) and that’s it. You don’t even have to go through the H-1B lottery if you were born in the UK.
If you get into a US PhD program, it’s much cheaper. Those are typically fully-funded, so you don’t have to pay a lot of money to get the F-1 visa. Then, after you earn a degree (either a PhD or a master’s if you decide to leave early) you can get green card sponsorship the same way I described in my previous paragraph.
A country can only increase well-being if its productivity (output per worker) grows. As pointed out in the article, you can get more total output by simply adding more workers, but without increases in productivity, average output per worker won't change, so you don't get growth in well-being. I believe the lack of productivity growth -- lack of innovation -- in the UK is the problem.
Addressing your question, Mike, the need for productivity growth suggests that engineers (who presumably innovate by creating new technologies that increase output per worker) should be getting paid high salaries. However, the fact that they're not getting paid those higher wages suggests to me that the UK lacks the complementary infrastructure needed to enable new innovations to actually be adopted and used by (i.e., create value for) the economy. Since the US has the complementary infrastructure, new innovations by engineers in the US can be plugged into the system, so-to-speak, and create value, which enables them to command higher wages than their counterparts in the UK.
Allied to that, there are other options for smart mathematically inclined graduates, like the city, which pay pretty well. So why bother with a low mid income engineering job.
The actual issue here is that US companies hire in the UK and pay good wages. Same for the rest of Europe. Not quite as high as SV but still extremely good. For example, I worked in a UK based role for a long time earning upper end of Silicon Valley level wages.
The result of this is:
1. US firms hire all the best UK talent.
2. The value they create is then generated in the US (extracted via arbitary-sized royalty payments), and thus doesn't have any economic effect on the UK, beyond the relatively trivial impact of higher spending by those engineers.
Even when Brits quit and create startups, to raise VC they have to go to US firms who then often require them to set up an HQ in the Valley. I've encountered quite a few firms that were notionally "American" in which almost all engineering was being done in the UK, but with near-US level wages.
This is an inevitable consequence of software companies not being exposed to protectionist measures in any way. Why would anyone NOT team up with the Americans in such a scenario? National pride?
'country can only increase well-being if its productivity (output per worker) grows. As pointed out in the article, you can get more total output by simply adding more workers, but without increases in productivity, average output per worker won't change, so you don't get growth in well-being.'
While you're technically right, I think the economic dynamics can be somewhat different.
Increases in total output can enable productivity growth by increasing the aggregate demand. Imagine an area with one person producing 100 units, and the same area with 100 people producing 100 units. Yes the former and the latter are mathematically equivalent, but I would expect the latter to do better over time.
Development economists often point to market size as one of the factors that enables innovation and productivity growth. This is because certain activities only make economic sense if there is a certain scale available for them.
If you have a 100 people producing a 100 units, that enables 1 of them to think, hey, maybe if I start selling widgets to the 99 guys that are producing units, that could be a thing. The widget producing depends on the market that the 99 unit producers represent. In innovating to set up widget production, the 100th widget guy will raise overall productivity and improve quality of life.
So you will again be technically correct - quality of life only grew when productivity grew, but like I said, I think the dynamics followed to get there probably have a role for total output.
You make a great point. One could absolutely distinguish Smithian growth from Schumpeterian growth. Smithian growth is achieved by organizing markets more efficiently, namely using specialization and gains from trade, as you point out. Schumpeterian growth comes from "creative destruction," that is, innovation, which increases productivity. Both play a role in helping societies develop.
I'm in the cannabis industry. Cannabis is classified as a Schedule I drug, which means the federal government considers it to be an illegal substance. Companies that are active in the industry are thus potentially subject to sanctions by the federal government. As a result, banks will not provide services to cannabis companies, because their entire operations -- cannabis and non-cannabis related -- may be shut down by the government. Without banking services, businesses are generally forced to conduct all operation in cash (receive payments, pay bills, pay taxes, etc.), which is difficult and requires much added security, which is very costly. Likewise, cannabis companies cannot use traditional advertising/marketing venues, including Google, Facebook, Instagram, etc., or traditional delivery services, including the USPS, UPS, or FedEx. Without access to banking, advertising services, or traditional delivery services, it's very difficult and/or costly to reach customers and scale operations. This hampers sales and profitability.
Please let me know if that answers your question, John.
I'm still a little confused. You provide an example of a specific government policy preventing access to existing complements. What complements might not exist in the British context which forestall innovation? It can't really be access to banking, can't it?
If you look at Israel, it has had pretty stagnant productivity growth over the last 20 years. Yet their nominal GDP per capita has surged. I think the real problem here is that PPP (which is used in "real productivity" measurements) is flawed.
That isn't really true. Well being can be improved by many things that bring the mean income closer to the median income (though certainly not by all such things). If productivity/worker increases, but all the benefit goes to a third party (i.e. neither reinvestment nor pay to the worker) then well-being is not clearly going to increase, and is likely to decline.
You are entirely correct. Tech salaries are half the US, taxes are 50% higher yet housing in London is even more insanely expensive than the Bay Area.
When I relocated from SF to London 4 years ago my Israeli colleagues made fun of how low wages there are, correctly it turns out.
Just as most Americans don’t realize how inefficient and underperforming their health care system is, the British don’t realize how bad they have it, even compared to other Europeans.
Tech salaries aren't half the "US". They might be half the Bay Area but this says more about the incredible levels of wage inflation in that very tiny area of one state than it says about the UK. I've had plenty of British colleagues that earned salaries pretty normal for the non-Bay Area US tech sector.
Half actually sounds about right if you ignore the Bay Area (where the differential is much bigger). Average US SWE comp is maybe 120k USD/year, and 50k GBP (~65k USD)/year in the UK. Of course you can do much better in both countries, but if we're talking about averages...
Salaries may be lower in UK but total comp is about the same or even higher in the UK when you factor in the cost of taxes and regulations born by the employer.
When a firm employees someone it costs more than. Just salary in the US it includes things like the employers portion of fica, unemployment insurance premiums, office space and computers for the employee, health insurance contributions and some amount of money that has to be put aside or spent on insurance for the risk of employees suing for wrongful termination or sexual harasment. The cost of an employee in the USA is usually about double their salary for white collar knowledge workers.
In the UK the factors that make up total compensation are likely so much greater than in the US that employees in the UK cost a firm more than an employee in the US depspite the UK employee having a lower salary.
Okay but (1) is this actually true or just speculation and (2) why should j random worker care about that?
Note that if it were true then it would seem to imply that uk productivity is higher than us (total comp is upper bounded by productivity if the employer wants to stay in business), but this contradicts data which says uk productivity is significantly lower than us
I happen to agree with your point (1) and your note, but I nevertheless can't help but remember the line, "I don't think Sir Humphrey understands economics, Prime Minister. He did read classics, you know"...
(As for 2, workers probably do care about how much the company has to spend on their living conditions, how much their legal protection is worth, etc. They likely trade off against salary to some extent - for example "danger pay" and "sea pay", where you get a higher salary to compensate for fewer workplace protections or comforts, respectively)
If the claim is that UK workplaces are so much nicer that it more than compensates for a 50% lower salary then that would need some serious justification, and seems highly unlikely to be true. It's not like American offices are radioactive waste dumps. American commutes are also shorter than British ones.
You could be right but, on the other hand, you could be wrong. We would need to see the workings out. The cost to the employer of hiring may well be cheaper in the U.K., as health is part of general taxes and it’s a less litigious country. I’ll try find the figures.
Employee oncosts in the UK from a quick google are around 33%. This is not particularly different to US ones (I remember these being around 30% for a US company I used to work for). This doesn't include things like overhead allocations on office space/power bills/liability insurance, but as someone who has managed a few business P&LS, I doubt those would make much of a difference. Insurance is probably the biggest of the 3 and compared to direct employee compensation costs it might make up a couple of %.
Is this true even at the upper end? I would be skeptical that non-salary benefits and other costs could cover the huge gap in McKinsey salary between NYC and London, though I could be wrong.
It may well be true at the lower end. "A lower ceiling, but a higher floor" would fit with the stereotypical perspective on Western European economies vs. the USA: better total compensation in Europe on the low end = less risk of true poverty in (Western) Europe, whereas the US offers less of a safety net on the low end but the opportunity for much greater wealth for the successful (and more total wealth overall). This is a stereotype and I welcome the addition of nuance.
you can google `income by quintiles' and it looks like the bottom quintile in Britain is at parity with the bottom quintile in the US, whereas from the 20th percentile up the US is ahead (in income), with the gap growing as you climb up the income distribution.
More fine grained data is not easy to find on a quick google. I could believe that e.g. the 5th percentile might be doing better in Britain, but now we're talking a pretty small fraction of the population.
I'm not sure that's always the case. I'm a software engineering manager at a company with both a US and UK presence. I'm strongly incentivized to recruit developers and analysts from the UK wherever possible, because salaries are so much lower for equivalent levels of experience.
To be clear, is that just raw salaries, or "total compensation" (including all the costs of employment, such as taxes)? If it's only the former, you might actually be in a position to find out what the latter is!
Not the previous poster but I have the same experience. I only have viz into the salaries (+bonus and stock), but I assume my finance overlords wouldn't encourage me to do it if it lost them money.
I have a second supporting anecdote: My team was able to hire a UK based senior level engineer for the salary that would be for an early mid-level US engineer. Something else i have heard about our UK based employees is that they have to give 3 months of notice before leaving a job (could be wrong?) and when we laid off a UK based employee we had to give them 3 months of notice (opposed to 0 for US based). Those two things increase costs but the salaries are lower, so there is a trade off.
Your graphs don't look particularly good for Britain, but they also don't look too good for France, Italy etc.
England is a European country, and Europe as a whole is just not doing so hot. Does there have to be a UK specific explanation? If you're Leave, then Brexit should have rescued UK from EU stagnation, and if you're Remain then the EU is doing well and UK should be trying to match it. I don't think either are true.
I have seen some small amount of data showing things going well for lots of eastern european countries like Poland, Slovenia, Baltic states. Could be due to starting from a smaller base. But it does seem like UK is doing worse than they "could" be relative to Frence, Germany, Spain, etc.
No, if you're Leave the consensus position is that very little has been done with the new powers and the UK is in effect still "in" the EU from a policy perspective. Due to years of procrastination and delay divergence was only possible starting from 2020 and the government immediately lost the ability to do anything except think about COVID for a couple of years. Then it went through leadership turmoil, increased the number of immigrants massively despite promising it would use the new powers to do the opposite, and has wasted a lot of time trying to avoid leaving the ECHR (a non EU European institution that still rules the UK) because that's the next blocker on the road to doing anything about the illegal migration situation.
In short, Brexit removed a major change blocker but almost nothing has been done with this new power, and the few things have that changed have gone in the opposite direction to what was promised. Immigration hit record highs. It's absurd to ask why UK productivity growth is poor when it has more than half a million NET immigrants a year. Why would anyone ever invest in productivity growth with access to unlimited labor flows of that size?
Curious how few comments mention that UK embarked on record levels of immigration in early 2000s, with predictable consequences for productivity and wages after just a few years.
Confounded by the fact that Canada's economy is tightly coupled to the American economy, which has substantially outperformed Europe over the period in question.
You're right. I should have said "UK embarked on record levels of *uncontrolled low skilled* immigration with predictable consequences for productivity and wages after a few years."
I don't believe this is necessarily a counter example as Canada (and some other countries such as Australia and to a certain extent the US) have huge primary resource industries where the major cap on production is availability of semi skilled labour. Spare Labour in Canada can be absorbed by the oil, mining and lumber industries boosting total output without substantially impacting productivity per capita.
In the UK, there is effectively a fixed demand of unskilled or semi skilled labour, primarily in service roles. As supply increases, the price of this labour decreases. This then further depresses the incentives for companies to invest in productivity increases in this field.
Most of that immigration was from the EU, and was more skilled than the UK average so it should have boosted productivity. The UK is a services economy and productivity is harder to measure or boost.
Reality is the UK doesn't even know how many people immigrated during those years, let alone how skilled they were. Official population stats are of such low quality the government itself had to relabel them as "experimental", lol. Like China, some analysts try to figure out the true number using water/electricity consumption data. Look at how badly they underestimated how many people would come forward for permanent residency to see just one symptom of this. The fact that the number of unvaccinated people went negative in some age ranges is another.
That would potentially also explain why the situation in Britain feels worse than in the rest of Western Europe, despite Britain officially having similar levels of GDP per capita -- if the GDP calculations are more-or-less right but the population calculations are too low, then real GDP per capita will be (perhaps significantly) lower than the official figures suggest.
I feel like the single most common thing I hear every time someone is describing their geographic area experiencing economic malaise is that housing is too expensive. There are probably a lot of other factors for making objective determinations about an economy, but from a purely feels based framework, it's the single most consistent complaint of the modern era. And I guess it might actually be exploding the Chinese economy as I type this, so that's exciting.
I'm not aware of anywhere that has fixed the problem after it got started. The issue is that people who own land/houses LIKE increasing house prices, and the economy rapidly becomes predicated on high housing prices. Any attempt to lower housing prices would be met by fierce opposition from everyone who owns, as well as banks, pension funds, and anyone else who is invested in real estate. Even many people who don't own would be opposed to it, as owning land is seen as a golden ticket, one that they hope to one day acquire.
I think the US is handling it middlingly. The mass migrations to places willing to build lots of housing demonstrates again the strengths of federalism, even if it doesn't truly solve the issue in the places where housing is ridiculously expensive.
I am a skeptic. It's the sort of thing that be popular among Brits of a certain age (those just too late to enjoy the boom, but just old enough to start to worry about home affordability), but do housing costs have that commanding role in economic growth, generally? For example, if you thought that low or falling nominal housing prices, the ability to without build with restriction, and manufacturing, and low cost of public transport all had a commanding role in economic growth, we might expect Japan to be the number one performer on economic growth... So a "Housing Theory of Everything" must be a "Housing is very important for economic growth in Britain" theory, and then how do you test that a counterfactual with lower price growth in housing would have seen higher PPP growth? Particularly since we'd probably expect that housing will tend to absorb price reductions elsewhere in the economy (if new supply of housing is just average while price falls are above average elsewhere, landlords and home owners will tend to absorb a higher share of income; so higher house prices can be a product of success in lowering other prices).
Back in 2017, the World Bank's ICP (International Comparison Programme) figures would give you (at nominal rates) an estimate of about 22% of household spending on housing in UK vs 18.5% in France (highest number of housing units:population of the OECD) or 21% in Japan, countries thought to have done particularly well on housing (although nominal prices seem high relative to the USA, where housing is only about 16% of consumer spending). (These are imputed by subtracting their figures for household spending without housing from household spending as a whole; the average for countries above $26k GDP PPP in 2022 is about 17%). You then need all kinds of indirect effects for this to cause changes in the size of the rest of the economy.
But at the same time, it has a large share of the banks' balance sheets and is a large determinant of consumers' willingness to take on debt (people will spend if they feel their house price is going up, reduce if they're worried about negative equity and need to put more in a pension, interest rates are high in savings accounts). Expectations of future prices underwrite the mortgage system and constructors decision to build new housing (unless their costs fall much more quickly or the extent of competition in the marketplace rises much faster than the sale price falls, they will likely build fewer units). So sudden declines in prices might do things to these which are bad for economic growth (house price crashes are fun for people who buy on the dip at the right time for lenders to be positive about future price growth and if they're offering low interest rates - the lucky few from 2010 - but are not fun times for the economy as a whole).
The first comment could easily swap Britain for Canada with minimal other changes. Housing is absolutely destroying the Canadian economy. It's foolish to start a business, it's foolish to try to have a career, or anything - housing growth is so strong anything but just buying housing and waiting is a foolish economic strategy. Many parts of the country have seen sustained YoY growth of 10-30% in housing.
And since housing is a cost input on everything and the biggest line item in every household budget, it has an enormous affect on the entire economy and the wellbeing of everyone.
--Anecdata alert-- I bought a condo in california 3 years ago for $395k. Based on the recent sale across the street, it's probably now worth between $500k and $520k. I couldn't afford it today even apart from the rise in interest rates. It was already the ceiling of my budget back then. It's hard not to feel that spending money on anything other than owning real estate makes you a chump, and that even if you do own it, all you're doing is making sure you tread water with everyone else. You can't get ahead...*all* the real estate is appreciating at the same absurd rate. I assume in no small part due to the fact that many of my peers did as I did and spent the first 15 years of their adult lives renting and desperately trying to scrape together enough for a down payment on something, and all those people are now finally able to buy in meaningful numbers. The same insane appreciation trickles down to rentals too, although in an attenuated way. At current savings rates, I could afford buy my parents' house, which they bought when they were about my age, in another 18 years. I would be 53. This of course assumes the cost of housing doesn't continue to go up relative to my salary. Heh. If you consider these savings to be in effect present expenditures on future housing, it displaces money available for everything else - retirement savings, family expenses, charitable giving, leisure...it's a largely invisible drag on the economy in that it can only be seen in the things that *aren't* done.
The U.S. also doesn't look great on GDP per capita growth post GFC compared to pre GFC trend. UK still a bit worse, but most of Europe is. It's 50% that the entire developed world would look bad in the first chart, then another 50% made up of a little currency decline, a little extra economic stagnation (more likely due to aging population than government policy), and a little bit of disruption from Brexit and COVID and slightly worse monetary/fiscal policy than other countries.
I think total R&D spending is more relevant than government R&D spending, even when the question is about austerity, because in countries like the US and UK where most R&D is privately-funded, government policy has significant impacts on private funding.
(Loose monetary policy increases all kinds of investment; government spending on high-tech products and services drives R&D in the affected industries; corporate tax breaks can directly incentivize some kinds of R&D investment, and consumer tax breaks can provide indirect incentives, as in e.g. residential solar and EV subsidies.)
Now, the real problem with the R&D spending hypothesis is that if you go to the OECD page and look at the trends in spending as a percentage of GDP, you see that the UK's rate of investment jumps *up* very dramatically in 2013, nearly doubling in the period from 2013 to 2020. This does not fit with a story of recent systematic disinvestment as a result of austerity.
I agree with this, but then the question becomes "when the UK government stopped funding R&D as much, why didn't British private industry pick up the slack, the way US private industry does"?
I think there might be an answer like "the US has a longstanding culture of private industry investing in R&D, the UK doesn't, and it's hard to develop that culture quickly", but I didn't see Tooze claiming this, I don't know if it's true, and his argument seems kind of weak without it.
That's the thing - I don't think there's good evidence that the UK government did stop funding R&D as much. Like I said, total UK R&D spending is *dramatically up* since 2013, roughly doubling as a percentage of GDP. If in fact public spending was cut, private spending more than made up the difference.
I do think it's a mistake, though, to think of private R&D spending as "picking up the slack" of reduced public investment, as if it's a countercyclical reaction. It actually tends to be a procyclical effect, since the governments that are willing to make public investments in R&D tend to be the same ones that are willing to expand incentives for private investment.
Isn’t this also just a question of economy of scale? R&D is a fixed cost to a large extent and if your domestic market is at least five times smaller perhaps the incentives just don’t line up.
"when the UK government stopped funding R&D as much, why didn't British private industry pick up the slack, the way US private industry does"
It might be useful to look at the largest UK companies. Going by revenue and using Wiki I get this list:
*) Shell (oil and gas)
*) BP (oil and gas)
*) Tesco (retail)
*) HSBC (banking)
*) Aviva (insurance)
*) Rio Tino (mining ... mostly in Australia and Canada)
*) Legal and General (insurance)
*) Unilever (British equivalent of P&G)
*) Lloyds (banking)
*) Vodaphone (telecom)
*) Glaxo Smith-Kline (pharma)
A few things should leap out:
a) NO TECH
b) Lots of "older industries": Resource extraction (oil and gas, mining), banking and insurance
c) Except for Glaxo Smith-Kline it isn't obvious how R&D would be particularly helpful.
(c) is the key. The United Kingdom (and Europe as a whole) doesn't have much of a tech industry. The older industrial industries (steel, cars, commercial aircraft ...) are more commodity and thus have lower profits but also innovation is harder to show value.
And the Brits lost many of their industrial base in the 1950s-70s. The consolidation of the auto industry (via British Motor Holdings) pretty much killed it in the UK. What was competitive computer (Elliott and Ferranti) and commercial aircraft (de Havilland) industries lost out to (mostly) American firms.
The banking sector doesn't invest in R&D like, say, the semiconductor industry.
This isn't NEW, so it doesn't explain why Britain seemed to stagnate when it did, but it is tough to find anything other than banking where the Brits seem to have a global competitive advantage.
I used the sector from Wikipedia and don't know much about Vodafone myself, but it is more like AT&T than Cisco, right? Mostly it provides *services* (e.g. cell phone plans) than the underlying hardware (e.g. Cisco routers)?
Googling comes up with this: "Vodafone's competitors and similar companies include AT&T, BT, Orange, Telefonica, Deutsche Telekom, Telstra, Tata Communications and Nippon Telegraph and Telephone. Vodafone is a mobile telecommunications company that offers voice, messaging, and data services."
Which seems more telecom than tech the way things are scored today.
Still, maybe Vodafone is a tech company and could benefit from lots of R&D spending (though then AT&T and T-Mobile probably can, too ...)? The primary point seems valid, though: The UK doesn't have nearly the companies that can benefit from large R&D spending that the US does. Same holds for Europe as a whole.
Or do you think this analysis is flawed and either (a) Europe and/or the UK have lots of tech companies that can benefit from high R&D spending, or (b) other industries (aerospace maybe?) can take up the R&D spending slack and Rolls Royce (as an example) could easily increase their engine R&D spending and expect to see a return on that rather than just waste the money?
No. It's worth remembering that US tech firms (software firms) allocate ALL engineering expense to "R&D" from an accounting perspective. Even if they're just writing their 10th chat app, this is nonetheless considered research spending.
This fact alone can explain a big part of the gap.
The UK like most of Europe can't develop a tech sector partly because all the best tech people are working in the local outposts of US firms.
One of the great tech advances of the past 20 years was fracking. It turned the US from an oil importer to an exporter and is a huge reason for the US recovery after 2008. The UK has done some fracking and has the resources in the ground. The question is why couldn't they take advantage of that technology? No reason they have to develop it themselves - just need to implement it. Seems to me, the biggest reason is Gov and public efforts to stop fracking and other resource extraction.
"The question is why couldn't they take advantage of that technology? No reason they have to develop it themselves - just need to implement it. Seems to me, the biggest reason is Gov and public efforts to stop fracking and other resource extraction."
I think the lack of fracking in the UK is a policy issue rather than a technical issue.
But the same is true for lots of disfunction there (and here!). So more R&D spending isn't going to help with THAT part of the problem (in either country).
It's been a while since I looked at this, but as I remember, it is really hard to find convincing evidence that public R&D has much of an impact on economic growth at all.
Here's a nice, simple explanation*: "resource curse", where our 'resource' is not oil or coal (any more), but cheap imported labour (both skilled and unskilled). This would explain the worst-in-class productivity growth and the terrible wage growth. It's also had a number of unfortunate side-effects (housing & infrastructure pressure, education & cultural challenges), which could have been mitigated through good governance but were not (for a number of different political reasons, plus the permanent omnishambles that is the Civil Service).
This resouce, the result first of the Empire and then of EU membership, allowed us to live well, 'beyond our means', for far longer than our policies and governance would have naturally allowed. Depending on your preferred metaphor, Brexit has either ripped off the bandaid and and made things hurt a lot all at once (but now we can see how big the cut beneath is and do something about it...), or kicked out the load-bearing wall that is holding up the whole house.
* Because this is nice and simple I mistrust it, though it feels true and matches my lived experience in the UK.
My understanding was that the specific instance of a 'resource curse' involving currency appreciation was the 'Dutch Disease': https://en.wikipedia.org/wiki/Dutch_disease, but I'm not hugely attached to the term. If you don't like it, feel free to think about it instead as a 'paradox of plenty' - we had plenty of cheap labour, but it doesn't seem to have helped as much as you'd expect it to.
"the fact that everyone there speaks English (the universal language) and it has rule of law" is a huge part of it as well - I should have added that to "Empire & the EU" in how it came to be - so thank you for highlighting it.
If true that would definitely be harmful to this theory. Do you have any links? Best I've found (in the 5m since you posted!) is this: https://data.oecd.org/chart/790m
and the similar indicators on that site - which seem to show the US having comparable inflows for workers to the UK (72k vs 52k), despite having a population ~5x the size.
Presumably that's only legal migrants though. If we are referencing low skill immigrants and the border with Mexico then presumably we are talking illegal immigrant flows, and googling suggests the total illegal immigrant population in the US is somewhere in the range 15m-30m
Funny how that number doesn't ever seem to go up much over the decades.
And yeah, one's perception of how the economy in the US is doing depends on whether or not one wants to live in simple inexpensive housing and work in lower-skilled labor.
Those UK numbers are hilariously wrong (on the low side).
1. The government itself doesn't know the true numbers and all official estimates are wrong by many multiples.
2. The OECD numbers are for "permanent" immigrants, but huge numbers of people arrive, claim to be temporary workers and then end up staying. And of course even if they are in some sense temporary they still need housing and still compete for work during that time (even students).
3. Actual migration numbers are more like ~500k a year (there was a methodology change in 2020 and suddenly net migration doubled). See the second graph here:
You have a country with a population of in theory 67M which grew 500k in one single year, that's LEGAL migration and doesn't even count illegal migration.
The scale of migration into the UK is just vastly different to the US, it's not even comparable.
Essentially you're saying that having a large labour supply suppresses wages and reduces the need for capital investment in labour saving technology. But a lot of economists would accuse you of falling victim to the Lump of Labour Fallacy (https://en.wikipedia.org/wiki/Lump_of_labour_fallacy). Others would probably agree with you, especially if you look at unskilled labour.
I don't think I'm arguing that there's a set amount of work that needs to be done, and that importing labour has taken that work away from native workers, which is what I think the LLF would be? That's probably happened in some cases, but not in others. I guess I'm more interested in how the ability to import cheap labour has distorted or blocked the price signals that might otherwise have driven investment (as you mention) or policy changes (particularly re. healthcare & salaries there).
I'm not sure it works, because as Mike wrote, typically the resource in question is having effects on labour/wages. It doesn't really make sense if labour is itself the resource.
If I had to claim the UK had a resource curse, I'd point at London's financial sector.
interesting there's a term for it, I see it a lot. See also "feminism halved everyone's wages by doubling the number of workers (implicitly sharing a permanently fixed amount of work)"
The entire idea of the resource curse is one of the "big lies": IRL, there is no such thing, and countries with more resources tend to be more affluent unless they are/were recently run by socialists or similar non-viable ideologies.
Indeed, a few moments of thought would reveal the obvious - if you see only slowly increasing per capita productivity, but you are importing low-productivity labor, for that to be the case, you would need to be seeing significant productivity increases on your indigenous population to make up for the low-productivity imports.
The government simply doesn’t feel a need to prioritise productivity and nothing seems to convince them to make it a priority. The “northern powerhouse” is basically a comedy meme at this point. That’s basically what’s going to happen when the government is defined by the unproductive elements of the national economy: Landlords, Pensioners, SpAds, and Yellow Journalists.
As a Brit, it is clearly housing to a very large extent, in London and the South East at least. Particularly the "Green belt", which is a remarkably effective way of blocking development in exactly the place it's most needed (surrounding productive cities). Although planning in general is pretty miserable in the UK: lots of uncertainty around the eventual process, and plenty of opportunities for people to veto or appeal.
It's quite different outside London, where incomes and GDP are much lower. There's a convincing argument that lack of transport infrastructure (either public transport or road networks) means UK non-London cities are in effect much smaller than they appear, so they lack the expected agglomeration benefits, see https://www.tomforth.co.uk/birminghamisasmallcity/.
Hijacking your thread a little to make it the *planning & housing issues* topic and adding this link which pretty much backs up what you're saying here:
The behaviors listed in that article happen in the US too, but the US has a much more heterogeneous political landscape as well as way more physical space. This means there is almost always some municipality that will welcome the population growth (though places are more constrained than others of course). It probably doesn't help that the UK's economy is more centered on a few large cities (dominated by London). The US has more metro areas to move too if you need jobs or cheaper housing.
I worry the UK is the future for many big cities in the US unless we refocus on growth and remove restrictions that raise the cost of housing, childcare, etc.
It's not that British cities don't have roads. It's that they don't have roads the way Houston or Los Angeles have roads.
Leeds is especially bad (it has one of the worst bus arrangements in the country, overwhelmingly dominated by the private operator First; it doesn't have a tram or a metro; local trains cover a relatively small part of the city, the central station is at capacity with the services still inadequate, and only two lines are electrified, so there's lots of diesel trains (which are very poor at frequent-stop local services compare to electric). Only Bristol of the UK's main cities is as bad as Leeds (it's somewhat smaller).
Other major cities generally have either a metro (Glasgow, Liverpool, Newcastle) or a tram (Manchester, Nottingham, Sheffield, Edinburgh). Cardiff has really good local trains (branded as "South Wales Metro", but they're regular trains, not a true metro) as does Glasgow.
The coverage of those metros and trams tends to be inadequate (only in Manchester is even a majority of the city and suburbs within walking distance of a tram stop, and there it's a narrow majority), but at least they exist.
It's worth contrasting with French or German cities of comparable sizes which have massive tram networks and sometimes metros or S-bahns.
I don't have a good answer, but it seems to me that most of the data shows the slowdown starting around 2008, which makes Brexit/other recent government decisions unlikely to be primary causes.
I wrote the following back in 2019, and then emigrated in 2022 (having been delayed from doing so by various governments’ overreaction to covid). I paid over 40% tax on my salary in my final year in London (that’s over 40% overall, the highest marginal rate was of course 62% between £100k-£125k). I now pay well below 20%, and enjoy an exponentially better lifestyle. Many of my former colleagues have followed me, and others are planning to do so. I wrote the following not in anger, but in sorrow, about what I perceive to be the UK’s inevitable, and almost inevitably cataclysmic decline:
For over a decade, most of the population have been parasitic on other people's hard work (there's no such thing as 'government money', only other people's money)…”
Thank you for your reply. My webpage was primarily just a scrapbook in which to save interesting articles. I certainly do not profess to have any solution to the UK's issues. The only advice I offered, and that I would still strongly urge, is that anyone earning over the median salary of £28k, or who has significant assets in the UK, should emigrate, taking their assets with them.
If you demanded that I must recommend policies for the UK, I suggest what I would call, "Ripping off the plaster", i.e. stop mincing ineffectually towards ever-higher taxes and welfare payments, just accept that inexorable direction of travel and finally commit to the project. Specifically, implement all of the following:
1. Impose 100% tax on salaries over the median of £28k. (Make the rich pay their fair share)
2. Provide a generous universal basic income at the level of the median salary, i.e. £28k, so no one ever needs to work again. (Stop penalising the poor and the unlucky)
3. Expropriate all private pensions and redistribute them on the basis of equity. (Private pensions and property are the greatest remaining sources of untapped wealth in the UK)
4. Remove the Principal Private Residence exemption, and impose Capital Gains Tax ("CGT") on any increase in properly value during ownership tenure. (Raid boomers' unearned piggy banks/cash machines)
5. Increase CGT to income tax rates.* Max CGT is 20%, max income tax is 45%. (Stop subsidising Tory donors) (* Under point 1 above, income tax would be 100% over the median income, of course. )
6. Remove all inheritance tax exemptions, and increase the rate to 100% - i.e. total confiscation of all assets on death. (You're dead, you can't spend the money but poor people need it)
7. Merge so-called National Insurance ("NI") into income tax. (It's never been a hypothecated tax, it's just a way to bribe Tory-voting pensioners because they don't pay NI)
8. Nationalise all private landlords' property, and turn it all into social housing, capping rent at housing benefit levels. (Stop rent seeking boomer leeches from exploiting the young)
9. Scrap non-dom status. (Stop corporate executives working in the UK without paying UK taxes on their worldwide assets)
10. Impose a wealth tax on all assets over the median level of saving of £12,5k (Less than 1% of the UK population owns half of the land in England; collectively, homeowners only own 5% of the country)
11. Ban foreign ownership of property, give owners 12 months to comply and allow HMRC to seize and sell properties to bolster national coffers. Reverse the burden of proof for HMRC to seize such assets, and remove the right to challenge seizures in court. (Stop oligarchs using UK property for speculation)
12. Partially nationalise all companies operating in the UK - starting with 10% of shares in all UK companies. This was in the Labour 2019 manifesto for UK companies over 250 employees, but why limit it. (Inclusive stakeholder ownership. (Nationalising the means of productions prevents the bourgeoise from exploiting the proletariat - 10% should only be the beginning)
I should declare an interest: I left the UK last year, having sold all of my property, liquidated my assets and transferring all of my funds from GBP to USD. I do however think that the above options would be more economically coherent than the current status quo of lurching grudgingly towards a similar end point, and regardless of the outcome it would be both fascinating and entertaining to observe from afar.
I recommend caution when interpreting figures for wages/earnings.
Say someone is working as an employee at Big Business Incorporated with a salary of £60k/yr. They quit, create their own company with themself as the sole owner and employee, and sell their services to Big Business Incorporated for £60k/yr, paid to their company. Their company then pays them a £12k/yr salary (the maximum tax-free amount) as an employee, and the remainder to them in dividends, in their capacity as the owner of the company.
This is a good deal for Big Business Incorporated: they get the same work for the same pay, without providing any of the ancillary benefits (statutory leave, notice periods, etc.) that an employee gets. It's a good deal for the worker, too: their income will be subject to corporate tax and dividend tax, which are less than the income tax they were paying previously. It's a bad deal for HMRC (the tax agency), who lose out on some tax revenue. But, in the statistics you're looking at, I think this would show up as a drop in wages/earnings, from £60k/yr to £12k/yr for this individual.
There's a continual struggle between HMRC and industry to determine to what extent this is permissible. If you're working for three or four companies at a time, never for more than a couple of months, then you're certainly a contractor, and are permitted to declare your earnings this way. If you're working for five years at the same desk, doing the same job as when you were a regular employee, then you're probably going to get in trouble. In between there's a lot of grey area, and HMRC struggles to define clear rules and prove in court when they've been breached.
My impression, from friends in the industry, is that there was a strong trend toward incorporating and declaring oneself a contractor for tax purposes through the 2010s in the IT sector, and that there's been a crackdown in the last couple of years. This sector might be enough to make a significant difference in the earnings plots you've shown, or the same could apply to other sectors. If I'm correct about this, then future figures for wages/earnings should increase relative to GDP per capita (as a consequence of the crackdown): their decrease relative to GDP per capita through the 2010s will have been an artefact from an accounting trick.
Agreed. It's an explanation for why growth in wages undershoots growth in GDP per capita in the 2010s in the 15th (2nd-to-last) plot in this article, but it only explains the difference between them: the reduction in GDP growth itself needs another explanation.
I don’t have any great insight as to causes, but I’m friends with the head book/paper conservator at Cambridge University. Cambridge is a great place to live, with expected very expensive housing and other costs. He was hiring a new conservator—a highly skilled, specialized, valuable job. The starting pay was 25k GBP. I was absolutely gobsmacked. I have no idea how anyone can live on that in Cambridge.
I don't know how the finances work out, but this seems to not be new. From Liar's Poker by Michael Lewis (writing about 1985 so adjust for inflation):
"Salomon Brothers had written me in London to announce that it would pay me an M.B.A.'s wage—though I had no M.B.A.—of forty-two thousand dollars plus a bonus after the first six months of six thousand more. At that time I hadn't had the education required to feel poor on forty-eight thousand dollars (then equivalent to forty-five thousand British pounds) a year.
Receiving the news in England, the land of limp paychecks, accentuated the generosity of Salomon's purse. A chaired professor of the London School of Economics, who took a keen interest in material affairs, stared at me bug-eyed and gurgled when he heard what I was to be paid. It was twice what he earned. He was in his mid-forties and at the top of his profession. I was twenty-four years old and at the bottom of mine. There was no justice in the world, and thank goodness for that."
So ~22,000 pounds a year for a chaired tenured prof at the LSE in 1985.
So, 62k GBP-ish for a chair at LSE today? I bet that’s probably not too far off the mark. The UK has a terrible track record of underpaying their academics, which leads to a substantial brain drain to the US. It’s mystifying.
“At that time I hadn't had the education required to feel poor on forty-eight thousand dollars (then equivalent to forty-five thousand British pounds) a year.”
Well that’s not true for most of the eighties (although there was a blip in 1985). The pound is about 1.8 dollars for most of the decade. It’s worth 2 dollars in the early 90s, around 1.5 for most of the 90s and gets to 2 dollars by 2007.
Further to my comment below, I should perhaps have cited the conclusion not the opening:
“The UK's Overton window was set decades ago by well-intentioned post-WWII socialists who implemented superfically attractive schemes of healthcare and benefits which were sadly both economically illiterate, and - in the long term - deeply counterproductive. They effectively threw evolution into reverse. The UK's fate was determined once more than 50% of the electorate became net “takers”. This outcome was inevitable given policies implemented in the post-WWII years. The UK has been on an accelerating downward spiral of higher taxes and worse productivity ever since. Now that parasitic voters are the majority, they will – quite rationally – insist on voting themselves increasing swathes of other people’s hard-earned money. The only rational choice for the latter - if they can - is to get out:
• The 46% of productive people in the UK who put in more than they take out are shackled to a corpse. They cannot change the reality of UK productivity and economic performance, and the policies which in a democracy must flow from that.
• Those who do not want to suffer ever-higher taxes and wealth confiscation should emigrate. Between Dubai, Hong Kong, Cayman, BVI, Singapore and other locations, there is no requirement to ever pay more than 17% tax ever again (if that).
• The UK is long overdue a vast correction to reduce the standard of living to a sustainable level. The process to get there will take decades and be brutal.
• Project Fear will be wishful thinking. The UK took a wrong turn by embracing socialism in 1948. Its subsequent economic history has been one of continuous decline, puntuated by temporary and non-replicable periods of superficial adequacy (joining the EU, selling off utilities, North Sea oil boom, selling council houses, printing money, suppressing interest rates, increasing borrowing, increasing taxes). The barrel is now empty. Those who can should get out.”
Oh there are some problems with it. The U.K. is a capitalist, not a socialist country, and has a strong financially driven economy. After all thatcher did happen.
The NHS is cheaper than the US health system, and if the U.K. is spending a lot of money on transfers then that is often driven by a generous pension system.
Nye Bevan explicitly described the NHS as "pure socialism", and as has been extensively noted recently it is the the single greatest cost to the UK, and continues to increase. Please see my linked webpage above, and search for 'Bevan' to get a hyperlink to the source of Bevan's quote.
Comparisons to either the USA, or to the UK pre-1948 are - respectfully - fallacious. I fell into the same trap before working overseas extensively. Please see, inter alia, https://www.google.co.uk/search?q=Kristian+Niemietz+NHS+US+alternative. The NHS is one of the worst systems in the world, but jingoism prevents many in the UK from recognising that.
However this doesn’t make the U.K. socialist. Might as well say that the US is socialist because of pensions and Medicare. Or because the government backing of mortgages which is more interference in housing than any European country.
“ Comparisons to either the USA, or to the UK pre-1948 are - respectfully - fallacious. ”
Respectfully, you are telling me what I can compare or not. The US healthcare costs are higher than in Britain and that’s a cost to the economy.
Maybe the problem with the U.K. is socialism. Maybe it’s Brexit. Maybe it goes back to thatcher and her decimation of the manufacturing base of the country. Maybe wages are falling because of immigration (although I’m pro immigration there are limits). Maybe it’s the over reliance on the city. Maybe it’s the loss of North Sea oil revenue.
Could be any of these, or all of these. Would need empirical evidence.
That’s all fair. My point about healthcare costs is that there are so, so many better alternatives than the US. Most of the time people making UK-US comparisons are doing so to advance a strawman argument. The link I provided was to many useful articles, most of which focus on European insurance options. They do seem decent, certainly better than the NHS.
Here’s a comment I copied from a commenter on a recent Financial Times NHS article, which suggests that even the Europeans are struggling, though:
“It's not just the NHS which is struggling. Here are summaries of the positions in the biggest EU countries:
That's obviously not a comprehensive study, but a pattern is nonetheless clear of high demand, but low supply. There are two trends: a stagnating supply of workforce and raised demand from aging populations. Europe is in awful situation in terms of competition for its medical workforce. Young people refuse to earn such low salaries for such high responsibility and workload. So-called 'progressive taxation' confiscates from doctors to subsidise baristas et al, and in so doing punishes professionals for being educated, skilled and hard-working. Many doctors therefore immigrate to richer countries inside the EU, and there are also many higher-paying, lower-tax jurisdictions beyond the EU. What is unclear is the role of highly regulated and so non-competitive market of equipment and materials and how much efficiency could be gained by competition between private systems. The stark reality however appears to be that henceforth, quality medicine is only for the rich. That is politically impossible to concede, and so seems likely to remain an unpalatable reality nonetheless.”
Personally, I like the Singapore model of healthcare. I have friends living there, I considered working there myself, and it’s still very high on my list of desirable locations to work in before I retire. Here’s what I wrote about it years ago (under an article about the crippling costs of obesity on the NHS, hence the preamble):
“Taxpayer-subsidised healthcare and welfare has thrown evolution into reverse. Before 1945, fat people would simply have been allowed to die. Now the rest of us are forced to pay for them. Many people are weak-willed, and know that, via the NHS, taxpayers who have made superior life choices will be forced to subsidise the feckless. A better solution is to force people to bear the consequences of their own choices. Singapore's Central Provident Fund ("CPF") is a compulsory comprehensive savings and pension plan for working Singaporeans and permanent residents primarily to fund their retirement, healthcare, and housing needs in Singapore. The Medisave, Medishield Life and Medifund elements of it provide healthcare, but largely without the moral hazard of taxpayer-subsidised systems such as the NHS. Essentially, people are forced to save into personal medical accounts which only they can draw upon. Insurance acts as a backstop for catastrophic and unavoidable issues, but the system largely removes the moral hazard element of people have to subsidise other people’s poor life choices.”
I find it funny how the linked article talks at length about the burden of the top 1% who are paying almost 30% of all income taxes but forgets to mention that their share of total income is even higher than that.
Thank you for your reply. Here is my view, accepting that it is the product of my personal experiences:
• Society comprises three groups: the Productive, 'Neutral', and Parasitic.
• Taxing the successful and subsidising the parasitic reduces the former and increases the latter.
• If tax-and-redistribution worked, after 75 years of it the UK would now be paradise.
• In fact, the direction of travel has been consistently negative.
• Redistribution sounds good, but in practice it throws evolution into reverse.
Most things in life come down to money. Beyond abstractions and hand-wringing, we get on best in creating resources and allocating them to demand if we put a monetary value on people and activities. The relevant costs and benefits are not particularly difficult to measure. If we could pay people in claps, or empathy, money wouldn't matter, but most workers are reluctant to engage on that basis. So, it all comes to money.
There was one sentence in Jeremy Hunt's 17 November 2022 statement that jumped out at me: “If we are going to sustain our public services and avoid a doom loop of ever higher taxes and ever lower dynamism, we need economic growth.” (www.gov.uk/government/speeches/the-autumn-statement-2022-speech).
Personally, I consider that Hunt’s “doom loop” began decades ago by the tax and redistribution necessary for the welfare state. I was a Guardian-reading socialist throughout my 20s, until: (i) an 8-month full time training course from my Whitehall (public sector) employer evidenced how UK finances were slowly collapsing; (ii) working in the criminal justice system exposed me to the “bottom third” of society, I saw that most were irredeemable and we were throwing good money after bad; and (iii) I changed career and began working in the City, with the "top third" of society (economically).
It only took one year of paying taxes at the 45% Additional Rate (then £150k+) before I emigrated. Many of my colleagues did the same. Others simply went part-time, took lower-paying jobs, or retired early.
I concluded that taxing the top third to subsidise the bottom third does not work. Redistribution punishes - and therefore reduces - net contributors, and rewards - and therefore increases - net recipients. A system which encourages - or even simply enables - people to take out more than they put in is unsustainable. Penalising the productive and rewarding parasites erodes the foundations of society by throwing evolution into reverse. Further, and additionally, without the border fences and capital controls beloved of socialist regimes, any more than limited redistribution is also impossible to implement.
I think the UK is on an irreversible decline towards being a European version of Argentina.
Thanks, and yes, that’s true. I think the UK is particularly badly impacted however because (a) it has a non-contributory welfare system, which is therefore even more generous than many European equivalents; (b) the UK tax burden has disproportionately been imposed on the most productive – ie in higher-taxing European states, everyone is paying a fortune, but in the UK it’s only high earners; and (c) since the 1980s the UK has become parasitic upon that narrow class of hard-working, well-qualified professional services employees largely based in London. Unfortunately, such people are highly mobile, so the strategy of a one-way ratchet of ever-higher taxes could not continue indefinitely.
A fascinating comparison is the US, where competition between states allows people to escape fiscally incontinent Democrat-run states. For example, this Bloomberg article on 20 July 2023 reported that ‘People who make $650,000 a year in New York can save more than $250,000 moving to Austin, thanks to the lower taxes and cheaper cost of living in Texas.’ - https://www.bloomberg.com/news/articles/2023-07-20/high-income-new-yorkers-save-250-000-by-moving-to-austin-texas. Internal migration figures show Democrat-run cities haemorrhaging their most productive to Republican states.
One of the problems with this debate is that many left-wingers have few marketable skills or qualifications and therefore are not professionally mobile themselves. They thus simply don’t understand that other people made different life choices, and refuse to stick around and be taxed to subsidise the consequences of other people’s life choices.
Left-wingers desperately need “Schrödinger’s taxpayer”: someone simultaneously intelligent, hard-working and capitalist enough to be a highly productive earner; and yet simultaneously naïve, complacent and socialist enough to tolerate the results of their work being confiscated for redistribution, without working less, going part-time, retiring or emigrating. I suspect that, like the USSR’s “New Soviet man” – who was selflessly willing to sacrifice himself for the state – such a figure is a chimera.
Anyway, it’s fascinating to watch socialist fantasies meet reality — from overseas!
- The key issue is that some workers are so much more productive than others. Many people are "underpaid" simply because they are not making any worthwhile economic contribution. The Oxford economist Paul Collier (https://www.bsg.ox.ac.uk/people/paul-collier) explains it thus:
“Something that every economist takes for granted, but noneconomists find uncomfortable, is that to a first approximation differentials in wages reflect differentials in productivity: people are more or less paid what they are worth. Of course, we are all aware of glaring instances where this is not the case: some people are paid far more than they are worth and others too little. But if employers made large systematic mistakes in matching wages to productivity, they would go bankrupt.” Exodus: Immigration and Multiculturalism in the 21st Century.
Over 25 years ago, in 1997, Lord Rees-Mogg, former editor of the Times, and a political heavyweight compared to his son, wrote 'The Sovereign Individual: Mastering the Transition to the Information Age'. It's now available as a Kindle download, and it's worth reading, even if (indeed, particularly if) you disagree with his projections. http://www.amazon.co.uk/Sovereign-Individual-Mastering-Transition-Information-ebook/dp/B08GL24HGD. I read it years ago, and it shaped my thinking, hence emigrating. Here are some examples:
"Because information technology transcends the tyranny of place, it will automatically expose jurisdictions everywhere to de facto global competition on the basis of quality and price. In other words, governments exercising local territorial monopolies, like most other entities, finally will be subject to real market competition on the basis of how well they serve their customers. This will soon make it unavoidably obvious that the old logic that favored high-cost regimes in the industrial era has reversed. Leading nation-states, with their predatory, redistributive tax regimes and heavy-handed regulations, will no longer be jurisdictions of choice. Seen dispassionately, they offer poor-quality protection and diminished economic opportunity at monopoly prices. In the years to come, they may prove to be more socially unreceptive and violent than regions of Asia and Latin America where incomes have traditionally been more unequal. The leading welfare states will lose their most talented citizens through desertion. …
…like it or not, the old system will be nonviable in the new competitive environment of the Information Age. Any government that insists upon lumbering its citizens with heavy taxes that competitors do not will merely assure that profits and wealth gravitate someplace else. Therefore, the failure of the mature welfare states to curtail taxes over the long term will be self-correcting. Governments that tax too much will simply make residence anywhere within their power a bankrupting liability. …
Taxing capacity in the leading nation-states will fall away by 50 to 70 percent, while it will prove far more difficult to reduce spending in an orderly way. The result to be expected is a continuation of deficits that plague most OECD countries, accompanied by high real-interest rates. …
Areas of opportunity and security will shift. Economies that have been rich during the Industrial Era may well be subject to deflation of living standards and social unrest as governments prove incapable of guaranteeing prosperity and entitlement programs collapse. …
Where possible, all businesses should be domiciled offshore in a tax-haven jurisdiction. This is particularly important for Websites and Internet addresses, where there is virtually no advantage in locating in an on-shore, high-tax jurisdiction. …
Information technology is [also] making it plain that the problem laced by persons of low skill is not that their productive capacities are being unfairly taken advantage of, but rather the fear that they may lack the ability to make a real economic contribution. …
Incomes will become more unequal within jurisdictions but more equal between them. Countries with a tradition of a very unequal distribution of incomes may be relatively more stable under these conditions than those jurisdictions where strong expectations of income equality have developed in the Industrial period."
Finally, returning from 1997 to 2023, here a bleak new essay by the economist Sam Bowman on 18 July 2023 warns that Britain should get used to thinking of itself as “a developing country”. We are mistaken, Bowman sombrely counsels, to imagine that we still belong with America in the front rank of nations. He presents a series of depressing statistics. The US is 39 per cent richer than the UK. Its productivity is 38 per cent higher than ours. In America a newly qualified nurse earns an equivalent £42,000 compared to £27,000 in the UK. In Alabama, apparently, you can earn $125,000 managing a car wash. His essay can be found here, and makes Rees-Mogg's 1997 warnings look prescient: https://www.sambowman.co/p/britain-is-a-developing-country
Do you think any of that has actually happened? Where has this happened “Taxing capacity in the leading nation-states will fall away by 50 to 70 percent”.
Thanks for your reply. I think that the trend is accurate, yes. I’m now working overseas in a huge expat community which is extremely mobile and has fled high tax jurisdictions. During the junior doctor strikes under Hunt as SofA for Health years ago, literally dozens of my friends were NHS doctors, and I even went on one march with them. Since then, a huge % have given up on the NHS and emigrated themselves. Lots more anecdotes from my own life, but I accept that ≠ data.
Please also see my related comments, as I don’t want to spam by repeating anything:
I lived in the U.K. from 2006-2012. You could see the beginnings of the malaise then. Until 2008 the post Blair boom was clearly ongoing, and it was a happy place in general. I feel Brexit later on caused a rift in the psyche of the country; if you are going to change your society via referendum, better make sure the winning side wins overwhelmingly. (There’s a similar argument that Scottish independence should need far more than 51% to succeed).
And wages? I was invited back to London recently on the same nominal contractor wages I was earning in 2012. That’s a real reduction of 30% ( at a quick estimate).
Most other people I know haven’t had raises for years, and are far below inflation these last two years.
Meanwhile the U.K. is also buffeted by the culture wars, and the whole thing is amplified post Brexit because the (young) left has not forgiven the (old) right for what they think is a betrayal of their future livelihoods.
And inflation, tamed in the US, is still ongoing in the U.K. (and Europe in general). Two years of 8%+ inflation would be hard to recover from, particularly from what we have seen in the graphs above regarding household income. Three would be a disaster. And there’s the general feeling of a decline in the public space as well.
Still the British are an industrious people and can come out of this in time. It kinda looked like wages were growing pre covid.
Wages will grow if/when immigration is slashed, not before. No chance of that in the short term. Tories are wedded to high immigration as they think it's the only way to keep the NHS going a few more years, Labor are wedded to it because they hate the English.
Only chance for changes there are for the leadership of the conservatives to radically change, which most likely requires electoral decimation.
I mean, I wouldn’t rule low skilled out as a partial cause of low wages in general. However to prop up the NHS needs immigration of a relatively or highly skilled type which doesn’t need mass immigration of the unskilled general type. So I doubt that. (Also if it’s true that these immigrants are propping up the NHS, replacing them would kill it so why would any government stop that?).
Anyway the more obvious support of mass immigration from the Tories is driven by the needs of their pro business and free market branch. Some of these supported Brexit as a bonfire of regulations including immigration restrictions.
Two key drivers of “UK economic malaise” discourse:
1– Recently, the UK has had significantly higher inflation than the US and the Eurozone without as much success at returning to pre-COVID trend. Price stability affects perceptions of economic performance, and most observers expect that the UK’s particularly high inflation rates will require particularly harsh corrective measures (starting from a weaker economic baseline than the US did when its year on year CPI was similar).
2– The UK had above-European-average growth rates during the 1980s and 1990s. Reverting to France-like performance felt like a comedown, particularly because Britons don’t enjoy the sort of labor market protections, free university educations, long vacations, and short workweeks that their counterparts across the Channel have probably traded some of their growth potential for. Continental Europe-like economic stagnation without the various compensations that help the continental Europeans enjoy a higher quality of life per PPP-dollar of per capita income than say, Americans do particularly sucks.
One piece of anecdata: British academics are particularly poorly-paid. This is less of an issue in other fields, but in the field in which I am a professor (CS), the only financially sound reason to take a UK academic job over a comparable US one is family money. I have a longstanding love of the UK and would chose it over the US in a heartbeat, for largely cultural reasons, but I could not justify the approximately 2/3rds pay cut to my wife, in the face of much more expensive housing.
This has had a profound and long-lasting effects for the country's tech sector. The only reason the UK has any presence at all in AI/ML is because of DeepMind, which happened in London because Demis Hassabis was a postdoc at Gatsby and liked it, and has family money. That's not to say there aren't plenty of brilliant British AI/ML academics; it's just that, DeepMind and its ripple effects aside, most chose comfortable middle-class lives elsewhere, and have been doing so for decades.
For calibration: a strong British university at which I would love to work recently advertised a Lectureship (equivalent to an Assistant Professorship) at £38k per year. The Assistant Professorship I landed in the US started at $120k a year, for nine months. You can add the extra 3 months summer funding if you get some grants (an option not available in the UK), which isn't hard in this environment, so effectively $160k.
These are jobs that are supposed to attract only the very top tier of researchers with PhDs, and require huge amounts of training. I only managed to land mine in my mid-30s. £38k. Extrapolate that to the rest of STEM and run that model forward for decades and see what you get.
It’s not just STEM. I have a friend who was a named endowed chair at Oxford in philosophy and left it for the University of Southern California. Money and weather, I guess.
Seconding this comment. In 2012 I was a postdoc in the USA, and received an offer at a UK research centre. A quick check of the numbers revealed that my quality of life, and ability to pay student loans, would have decreased dramatically. I stayed in the USA.
Funnily enough, the 38k was what I was paid as a post-doc in UK in 2008; when I became a lecturer in UK in 2015, I dropped to 35k....also, regarding comparison with US wages: how about the high healthcare costs in US?
If we are talking academics, universities typically have excellent health insurance, so healthcare costs in the US are approximately nil.
Meanwhile averaged across the population, it looks like healthcare costs are around 12k / person / year. Most of that is going to be coming from the elderly though, who are covered by medicare. In short, no way that healthcare costs come anywhere close to swallowing the differential in salary.
Seconding Humphrey, I get excellent health insurance through the university. (And dental, vision, life insurance, etc.) The main cost differential for me will be when I send my kids to college, which will be exorbitant here but isn't too bad in the UK.
Also true in Physics. For an American postdoc to accept a faculty position in Britain typically means taking a pay cut. Relative to an American faculty position the pay cut would be 50% or more.
And yet somehow DeepMind didn't have a problem building Europe's premier AI lab.
Academics overrate their own importance. Pay is probably too high for them in the UK relative to value delivered. The US has a very rich academic sector due to the cultural practice of rich billionaires making massive donations, and because a very tiny number of top universities like Stanford are basically VC firms with universities attached. But the actual value delivered isn't much different. Note how "phd dropout" is practically a tech sector meme.
From my perspective on the ground the decline certainly feels very real, in a way that's not reflected in the GDP stats. Even the median income and wages figures only suggest a stagnation since 2008 at worst, whereas if you asked the median person I'm sure they'd say the standard of living had worsened, even prior to the recent inflation.
I'd say the most obvious cause would be housing. Although this FT article says the housing crisis in the UK is fairly typical for an Anglophone country, and less severe than in non-English-speaking developed countries (maybe the lesson to take away is we should switch to another language).
The other Anglophone countries, the US in particular, don't seem to be in as dire a predicament as the UK is, whereas some of the continental European countries are arguably in a more similar position. Which makes me doubt housing is the crucial factor, bad as it is. This could be the reason the GDP stats are still relatively strong though, since an inflated housing market will boost those.
It's a bit of an out-of-left-field explanation, but for my entry in the book review contest I argued that Britain has an extreme case of what David Graeber termed Bullshit Jobs. Large sections of the economy have come serve dubious social purposes in the last decades, i.e they're not obviously welfare improving.
If the UK really is performing unusually poorly economically in comparison to other developed countries, I'd argue that's the structural factor that's most unusual in the British economy.
To focus in on one part of the discussion - I think the wages/real wages distinction is worth reflecting on.
There are three different wage values that a person might be interested in:
1. nominal wages (which you show), ie the actual figure printed on people's paychecks. It's meaningless.
2. real wages in domestic currency (which you show), ie the figure on people's paychecks deflated by domestic inflation.
3. real wages in dollars, ie the figure on people's paychecks converted to dollars by the contemporary exchange rate.
I think - and I might be misreading - that you posted charts 1 & 2 but, going by your reference to the exchange rate, interpreted them as charts 1 & 3.
I might be wrong trying to correct you here though, because the basket of goods used to deflate (2) is at least partially imports, and so a drop in the pound around this time should indeed make the basket more expensive and so it's kind of a moot point to make.
But that leads to another, fuzzier point. The devaluation of the pound happened basically all in one go in 2008. It's been stable at around the same level since then. And so if you want to use the pound's devaluation to explain stagnant real wages, you have to claim that the effect of the devaluation has leaked into the price of the basket of domestic goods over 15 years.
Which feels like a very long characteristic time for such an effect.
I was thinking of some of the same points. You have to be really careful comparing incomes when using exchange rates. Exchange rates reflect only the relative demand and supply of the currency - which can be quite divorced from the quality of life of the people, including economic quality of life, unless you’re buying the majority of your products from foreign countries.
Graph 1 shows what you’d expect from two swings in the exchange rate in 2008ish and 2020ish. I don’t know the UK economy well, but if there was a substantial drop in oil exports around 2008, as someone mentioned, that could cause a substantial, semi-permanent, one time change in the exchange rate. Same goes for Brexit if it’s true that a lot of financial service activity fled the City for Frankfurt, etc.
So what we see in the first graph are two one-time drops due to changes in demand for the currency. Both of these will have an impact on domestic incomes, but it will be much smaller than the change in the exchange rate for two reasons: only a small part of the economy is directly affected by the drop in those sectors, and as the exchange rate drops it will induce demand for other export products that become relatively cheaper.
On the negative side, the drop in employment in the directly affected sectors will have a smaller knock-on effect domestically as some of those people are temporarily (or sometimes permanently) unemployed and buy fewer domestic products.
Outside of those two drops, you see the economy growing much as other economies do. So when you look at overall domestic per capita GDP growth, you see incomes going up pretty averagely with some temporary slowdowns.
So, my intuition is that tbe apparent difference between some of these graphs is the result of applying a change in the exchange rate to all incomes in the economy, instead of just to the smaller subset of internationally traded products.
Of course the drop in the exchange rate has side effects. The downside is that you can’t afford foreign products as much. (Your cell phone or oil will cost more.) So to that extent people really are poorer. The upside is it’s easier to export as your export prices are benefited. After a short-term adjustment period there is usually a rebound that brings incomes back up - though normally not quite as high as you would’ve been before you lost the valuable oil/financial services exports. The loss of oil revenue may have been inevitable, but the loss of financial services contracts may have been avoided, and one might well blame Brexit for the latter.
Take this with a grain of salt - I haven’t looked at UK economic history for much of this time period and haven’t dug into the data beyond what’s shown in the blog post. There will no doubt be a lot of other moving parts and trying to tease out the relative impacts would take a lot of statistical analysis. My instinct is that Covid, immigration, research expenditures, housing, and the other things people have mentioned don’t fit the timing, effect sizes, or foreign comparators well. But they may have had smaller and/or longer term impacts that cut across across the more visible movements in these graphs.
> I’d also like to understand more about how public R&D spending works. Is the government just funding basic research? Or are they helping companies make products? If the basic research, why are the benefits so limited to the individual country that the research is being done in?
I think I can try giving a bit of insight on this, though anecdotal. I worked in a public British R&D institution for years and the story was, roughly:
1) salaries were awfully low compared to the industry, we're talking below £40k for experienced, senior researchers who could easily go out and earn £60k-£70k elsewhere. Literally only held by their passion for the work, and hiring was super hard. This also because the government explicitly blocked the increase in salaries for years (as it did for all public workers, because austerity)
2) funding was given through grant programs that the workers themselves had to continuously apply to to find money for their own salary - not as bad as it seems like it is in University as some programs were relatively reliable to be renewed, but still, more productivity down the drain (writing often inane grant applications that didn't say much and would be thrown in the almost stochastic and often politics-driven engine of bureaucratic committees)
3) but most importantly, lots of funding was essentially a roundabout gift to private companies. Programs had a much better chance of going through if there was some kind of partnership with a private company involved; then the public money pays for e.g. a few PhD students or infrastructure like supercomputers which is then preferentially used by the companies, with the public researchers mainly getting the crumbs that fall off the table, and often they'd then get to keep any useful results under NDA and patent them, whereas the scientists only published what results they were allowed to in papers and that was it. Industry would always get the red carpet treatment over anyone else. This resulted in some rather humiliating situations - in one my whole group was literally kicked out of a building at short notice and forced to scramble to find a different office to make room for companies that were establishing a presence on campus.
So I think it's understandable how this stuff doesn't work much: poor retention, worse hiring, and what is done often ends up benefiting directly only a handful of companies who may not even exploit its full potential, as the partnerships are designed specifically to boost directly British industry.
Part of the problem with Britain today (and perhaps the past) is the elite dislike of practical subjects. Even mathematics (not practical in its pure form) comes in for attack from British “thought leaders”
This is from Simon Jenkins, bemoaning the “Tory driven cult of mathematics”. Every sentence is bunk, so I will leave to the reader to debunk it in his own way - watch in awe as a graduate of theology wonders about the practicality of math.
I suspect Jenkins hates mathematics because he wasn’t very good at it, but he comes from an elite class (hence the guardian gig) and it pains him that plebs who may not have even had private schooling, or gone to Oxford, might have some ability here that he doesn’t.
But this couldn’t be right, could it? How could the plebs be smarter than Jenkins, some of these blighters went to red brick universities. Shudder.
This isn’t unique to Jenkins, practical subjects are generally frowned upon even in the elite universities. The future politicians are doing classics and philosophy. And mathematics isn’t the under graduate course for the future ruling class either.
It’s been like this for decades, perhaps for ever, but the chickens are perhaps coming home to roost.
In fairness that's the Guardian. Tories have more engineers in Parliament than Labor and made noises about reallocating funding and focus towards STEM. I think they maybe even did it, unknown, lost track a long time ago. Tories have had computer science grads as ministers several times and currently still do (Badenoch).
I work in a FAANG in the UK. Most people I work with are first or second generation immigrants. It’s really striking how few white, posh, public school graduates there are compared to previous areas I worked in. I’d hazard because there is a fairly objective and high hiring bar and which secondary school you went to isn’t relevant.
Does that point to something deeper? The City has its high performing areas but also seems able to absorb a lot of chummy people into jobs of questionable productivity. Look at all the mediocre MPs who have a vague background in the City but didn’t seem to achieve much.
The British elite, due to class/prejudice, doesn’t seem aligned with wealth generation in the same way that US elites are. Aversion to maths and practical skills is another symptom of this.
Plus inflation is also projected to drop significantly.
I think people are misjudging the raw numbers - EU will never have the rapid economic boom enjoyed by the asian countries - the standard of living within the EU is already pretty high, among the top few in the world.
EU was never going to become some sort-of economic "superpower" - indeed, the reality is that no serious politician lobbies for that. The paramount priority is to reduce disruptions to citizens' quality of life and slowly improve it to maximize votes/support.
Thus, I find such shaky comparisons based on wealth to be ultimately meaningless. If a government cannot provide the citizens what they rightfully deserve, then it has simply failed them.
>My impression is that the EU is handling pretty well overall.
The EU is experiencing rapid relative decline. It has gone from 90+% of America and 25%-ish of world GDP in the 2005 to 70% of US GDP and 17.5% of world GDP in 2022. In other words, economic stagnation. They are standing still while the rest of the world moves ahead.
The idea this is inevitable is disproven by the US. In the same time period the US has maintained its relative position even as East Asia grows very rapidly. And the US already had a high standard of living.
> Thus, I find such shaky comparisons based on wealth to be ultimately meaningless. If a government cannot provide the citizens what they rightfully deserve, then it has simply failed them.
Yes, the pro-Europe case is a fundamentally moral one. Not about what is but about what ought to be, what people "deserve." There are few hard or objective measures on which the EU is doing better than the US. But if you feel like European style social democracy is a moral imperative and dismiss the importance of things like wealth then of course Europe is tautologically more European than the rest of the world.
The average American takes 18 days of paid vacation a year and spends about $5,000 on such activities. The average European (as in from the EU) takes 21 days off and spends about $2,000. Additionally, while 73% of Americans report being satisfied with their vacations 49% of Europeans do.
It is true that Europeans on average work less than Americans (1600 vs 1800 hours per year). But they're also paid significantly less and have less disposable income in general. ($56k in the US vs $16k in the EU.) There's also more inequality since the US has relatively even labor standards while the EU has on the one hand France (with extremely low hours worked) and on the other hand Greece (which works more than the US).
So basically Americans work about 13% more and receive 350% more in income. They receive about 15% less in vacation time but spend about 250% more during those vacations.
ETA: If you're actually interested in this topic: there's a bunch of fascinating studies about European, East Asian, and American vacationers and how their relative spending has changed as a reflection of things like real incomes.
But is the number (16K vs 56K correct)? I could not see any source for that...in terms of vacations, if Americans don't have enough Vacation Time then it doesn't matter that they can afford a European vacation...
Yes, nominal. Because nominal is the real number, the amount you have in your wallet and can actually spend. PPP is meant to adjust for the fact labor and materials are cheaper in poorer countries and so you can get cheaper domestic goods. No one actually lives in PPP world. It's useful for certain things but not the default.
> There are few hard or objective measures on which the EU is doing better than the US
Could you elaborate on that? perhaps the most significant metrics - happiness of the very citizens EU exists to serve, as well as the strong social net, healthcare systems, education, stability etc. aren't as objective as one would like. But I see you have better alternatives in mind?
> And the US already had a high standard of living.
Again, I'd love to see your outline of what metrics you weigh here to reach that conclusion.. (to clarify, I'm treating QoL relatively w.r.t other W.E.I.R.D countries)
> Could you elaborate on that? perhaps the most significant metrics - happiness of the very citizens EU exists to serve, as well as the strong social net, healthcare systems, education, stability etc. aren't as objective as one would like. But I see you have better alternatives in mind?
Oh no. I'm happy to use all of those except happiness. I think we can agree feelings are not objective. However, I will note the US scores higher on the Happiness Index than the EU average. (7 in the US vs 6.6 in the EU.)
The US spends more on social spending per capita than the EU in nominal terms. If you adjust for PPP it ends up roughly at the same level as Germany, well above the European average. The way that pro-Europeans get around is the US spends a smaller percentage of GDP. But the US has a much higher GDP. In terms of actual services delivered in real terms the US is far ahead.
It also spends more on healthcare. In fact the EU spends less than the OECD average (about $4k vs the US's $13k vs the OECD average of $5k). It also has better post-treatment health outcomes and shorter wait times. While Americans do pay more out of pocket for healthcare the US government pays more subsidizing that healthcare consumption than Europe does on healthcare period. And the greater incomes of Americans mean, even after you take healthcare spending into account, they're wealthier.
I'm not sure what you mean by stability.
> Again, I'd love to see your outline of what metrics you weigh here to reach that conclusion
You're going to deny the US has a high standard of living? This marks you as fundamentally unserious. So I'll limit myself to pointing out the HDI gives the US a score of 0.921, putting it in the top 10% of countries. (And yes, I know they score many individual EU countries higher. All that is necessary for my point is to show that the US has a comparable one and yet still manages to grow.)
I think it's pretty obvious that the US has an unusually high /median/ standard of living, and probably even an unusually high 25th centile standard of living.
But I think it's much less clear-cut if you look at the bottom 10-20%, and those are the ones I care about most.
The US is ahead of the EU on the bottom 10% as well but that's because the EU's bottom 10% are the poorest of Eastern Europe.
If you instead look at only the rich parts of Europe then the cut off for where European social services provide a higher standard of living is roughly at the 10% mark. This is because European welfare largely covers able bodied people who don't work very much or who are welfare dependent while American welfare is based around either supplementing the working poor or encouraging people into the workforce. But this is simply a policy decision and returns to my point about such arguments being fundamentally moral.
This meme that Europe is falling behind is entirely resting on nominal GDP, and it's pushed because it makes the US looks good. If the US was so far ahead, you'd see it in objective QoL indicators such as life expectancy. Yet what we observe there is the opposite. The boring reality is that, adjusted for price differences, the lives of Americans and Europeans have not changed much over the past few decades.
I tend to think nominal is more real than PPP since nominal is the actual world people live in while PPP is an adjustment meant to compensate for the fact poorer countries also have lower labor costs and so cheaper domestic goods. For example, the reality means that Americans move to Europe with fat American salaries and live a much wealthier life in the European economy. The same way they can in Mexico.
But even if you disagree with that: You still see the US pulling ahead in living standards, disposable income, etc. Even on a PPP basis. From roughly on par to the EU stagnating and declining relative to the US (somewhat) and East Asia even more in PPP. In PPP-world Asia has already surpassed the EU in several ways while the US has remained on top (though to a lesser extent than in nominal world).
You're again repeating the same mistake - conflating disposable income with QoL. It completely undermines your point because you're considering one *sole* factor.
Provides an option to re-weigh each factor. Putting them all equal, you see the US is far behind that its european peers. In both metrics, objective as well as subjective, the EU in general does considerably better - the laws here are strict but effective (case in point, you need something like GDPR to stop big tech like Meta to suck all your data - even irrelevant datapoints that have nothing to do with the platform are monitored. Yet its allowed in the US).
If you view the world through rose-colored glasses, all the red flags just look like flags...
I'm not considering one sole factor. I have mentioned factors as diverse as time off, the quality of vacations, how welfare is provisioned, quality of housing, healthcare outcomes...
You're seeking squishy measures because that's the only way to put Europe ahead of the US. I'm guessing because you have some emotional investment in denying Europe's stagnation. Someone's using rose colored glasses here. It's not me.
In the case of your link the US does relatively well on objective measures (like income, housing quality/costs, healthcare actually provisioned) and relatively poorly on squishy measures (like how safe people feel, how much community they feel they have, etc). But only relatively. Even then the only categories it's below the EU average are in safety and work-life balance.
5. Student debt is at an all-time high in the US (but I'll give credit where its due - its slowing down). Still, having $1.6 tn student debt doesn't sound very amazing.
We should NOT completely ignore price differences when comparing countries. Price differences convey very important information. Like Erusian mentioned, typically they convey to you how much people's time is 'worth', making countries that are generally poor and worse off look a lot better than they are.
Think of it this way - if the goods and services being created in any country were equivalent to the goods and services being created in another, their per capita nominal GDP would also be pretty much the same! So if their nominal GDPs are different, you're losing valuable information by missing this!
PPP comparisons are useful, but need to be used much more carefully than they are.
The American population has grown significantly over the last 30 years, Europe’s hasn’t.
Your last sentence doesn’t make any sense. There isn’t anything necessarily (or ”tautologically”) ”European” about social democracy. Other countries can be social democracies (and are).
> The American population has grown significantly over the last 30 years, Europe’s hasn’t.
Even in GDP per capita the US is pulling away. From $27k per capita in 2005 to $38k today (a 40% increase) while the US went from $44k to $72k (a 63% increase). The ratio between them went from 1.6 to 1.9.
> Your last sentence doesn’t make any sense. There isn’t anything necessarily (or ”tautologically”) ”European” about social democracy. Other countries can be social democracies (and are).
Sure. My point is simply that Europe (and social democracies in general) tend to underperform the US. Though this is hardly surprising since most of the world does. The arguments about why it's superior come not from material factors like its better ability to provide a quality of life but from moral beliefs.
Also, there's a particularly bad habit I see among social democracy advocates where they define social democracy so narrowly that they end up basically meaning Denmark and the Netherlands. Mexico is a social democracy but it doesn't do well on many indicators. Social democracy is not necessarily bad but it's not some always successful wonder-government either.
I personally don't think that social democracy is either responsible for the success of Denmark or the Netherlands, or for the poorer performance of Mexico. (I don't claim to know much about economics, but anyway.)
If the GDP per capita of the United States is 72 000 per capita, how is it that 40% of Americans lack enough money to cover a 400 dollar expense?
> I personally don't think that social democracy is either responsible for the success of Denmark or the Netherlands, or for the poorer performance of Mexico.
I think it is to the extent governance in all places is responsible for economic growth or lack of it.
> If the GDP per capita of the United States is 72 000 per capita, how is it that 40% of Americans lack enough money to cover a 400 dollar expense?
They don't. The way they get to that number is by surveying people on how they'd cover an unexpected $400 expense and then excluding anyone who uses any method other than "pay cash out of my own pocket." Put it on a credit card? In the 40%. Ask family/partner/friends for help? In the 40%. Etc.
The number of people who self-reported they simply could not cover the expense was 11%. And the bottom 10% of income in the US is largely people without regular employment. Assuming those groups are largely overlapping, which there is evidence for, almost all full time employed Americans can cover an unexpected $400 expense.
Also, both numbers have declined such that even with the initial measure it's down to 32%.
Social democracies are not responsible for much of anything! The Scandinavian countries were just plain old capitalist countries without substantial safety nets until the 50s or 60s, and were already rich countries by that time. They, particularly Sweden, turned sharply to the left and became almost welfare states at that point, and predictably performed substantially worse. In the 90s, Sweden was commonly known as the 'sick man of Europe' because of the abysmal state of their finances. They then reformed their welfare states very substantially, and have recovered to being reasonably well off places with slightly more generous benefits in some areas that are run a lot more tightly than most people who are enamoured of them are aware. Also, be very careful trying to transplant successful government interventions from tiny, monocultural rich countries like the scandinavian ones to bigger places. Thick implicit monitoring of government that comes from very strong kinship and cultural ties is an enormous part of why Scandinavian countries are as well run as they are.
The EU population has grown significantly. By absorbing a plethora of second world economies. I think if the US absorbed Central America and its overall GDP per capita declined significantly - that would be a valid excuse. There are problems with the Euro for sure.
Certainly, but the `stagnation' point also holds if you restrict to specific Western European countries. `The EU' has absorbed a bunch of second world countries. The UK (which the OP was about) has not. Nor have France, Italy etc.
The role of government is to provide foundational public goods ( https://en.wikipedia.org/wiki/Public_good_(economics) ) like national security and law and order. Almost the most important of these is protection from government itself!
The long history of humankind is of struggling to obtain military power over others and then abusing it. It is only when our governance systems evolved to the point that government placed constraints on itself that people's incentive to improve their own lot through trade was fully unleashed, and this has been the corner stone of all rapid advancement in human welfare (https://ourworldindata.org/a-history-of-global-living-conditions) .
This is why the role of government should be to ensure property rights and supports the functioning of markets. That is what actually gets citizens to high standards of life. Governments that attempt to substantially veer away from this role bring disasters to their citizens. Copy pasting from an earlier comment, extending the point above -
'The most convincing of all are natural experiments - countries that have chosen pro-state communist/socialist policies have done substantially worse. Countries with very similar or identical culture/genetics that have chosen market based systems have done several orders of magnitude better. East and West Germany and North and South Korea are the starkest of those. This is still not all. The experience of India and China should be even clearer. Both countries chose socialist/communist paths, under which poverty, malnutrition and generally poor standards of living remained rampant for decades.
Then they switched over to market based systems. China in 1979 and India in 1991. Both made substantial improvements in poverty rates and all other human development related indicators within short order, dramatically improving the lives of approximately 700 million people at the very bottom of the pyramid, and 3 billion if you count them all.
The same relationship runs the other way. Countries that have switched to socialism, especially stronger forms of it, have created enormous suffering for their people in spite of possessing all sorts of advantages. Venezuela is only the most recent example.
And of course , these facts do not sit in an empirical wasteland. There are very good and empirically sound theories that explain why these things would happen - incentives matter, there are gains from trade, specialisation increases productivity and markets allocate resources much more optimally than social planners.'
Perhaps there's some sort of a critical point here - rich countries slowly become more socialist as the younger generations demand more and more with the knowledge that the goverment is fully capable of providing it.
Whereas poorer countries like India need to first build up capital. It makes no sense to lobby the govement for strong public services if the country can barely stay afloat and manage its political problems as well as improving food security, meeting basic needs, combatting poverty etc.
So from that perspective, current developing countries have a high chance of replicating EU as they become richer and recognize the QoL offered by alternative systems for governance
I've gone to great lengths to outline why we have very good reason to believe that quality of life is not based on government action (beyond public good provision).
You can take one small snapshot in time where a 'rich' country (relative to others) is doing well, slap socialist norms and an over active government on to it, and perhaps see things not break apart for some time. But it will not sustain. The harder you go towards the over active government, the more things will break.Even well off countries like Sweden, once they swing far into welfare state territory, become very dysfunctional (look up Sweden during the 90s).
UK is not the only European country in decline. Even the most advanced economy - Germany - is growing much slower than the US. Most of the European government offered welfare benefits are complete ponzi schemes, dependent on a larger future population, and in precarious positions given current demographic trends. If you don't think this is going to affect quality of life in the medium term future, especially given what I have said, I give up.
You are lacking much empirical evidence here - for instance the very successful European and (even) the US economies are highly mixed economies as is Japan and South Korea and South America. Well everywhere.
The US is a major military power also with large government social spending. No rich country has the limited powers you describe in the first sentence (“The role of government is [just] to provide foundational public goods”), so this is a fairly typical motte and Bailey argument, the motte being social democratic capitalist countries do better than communist countries, the Bailey being that this means that countries should be libertarian.
The comments from AH about an economy overly dependent on housing, low skilled immigration and selling degrees to international students all apply to the Australian economy too
The stuff about housing and a rentier economy sounds like Henry George's thesis on what happens to otherwise successful economies in the long run.
If you ask the Georgists, they'll tell you this is what it looks like to be moving toward the inevitable equilibrium state of housing markets given long enough without war or mass destruction of other kinds. A state in which land is owned by the few and inherited by those lucky to be born to them, who extract rents from the many.
A state staved off only temporarily by developments such as the automobile or mass transit which made land further from city centres viable to live in. Resetting things somewhat and delaying the eventual ossification of land ownership to a later date.
Georgism used to be incredibly popular. I wonder if we'll see a resurgence.
I would be quite happy to see a few advanced economies implement Georgist LVTs as an object lesson to the world. My expectation on what the lesson would be is quite different from most Georgists.
Tokyo does not to my knowledge have LVT, but they do have one of the expected Georgist results where residential real estate is an asset that depreciates like most others. Anyone know what policy differences between Tokyo and the US / UK situation has led to the situation where most residential real estate is built, depreciates to zero, is then demolished and rebuilt.
... though in the limit where the assessed value of the improvement is zero (because it has fully depreciated), the property tax becomes indistinguishable from a land value tax. Is that all that's going on here? There is a stable equilibrium where market values, assessed values, and accounting values all agree that real estate depreciates? And one can get semi-Georgist outcomes without intentionally Georgist policy -- with a sufficiently permissive redevelopment environment, where there is adequate supply of residential units and existing residential housing stock depreciates based on age, then the market value of residential construction depreciates to zero after a few decades, because even though one could still live there, there are better options, and the property tax on fully depreciated real estate is essentially a land value tax. So there's at least one example of reaching a somewhat Georgist equilibrium beginning from the YIMBY direction rather than the tax policy direction.
I was toying with that idea of energy consumption as an index. Intuitively, it seems like a good idea—more energy spent means more production, right? It’s decoupled from currency. We’d expect something like the British shift into housing, or any unproductive sector, to go with a decrease in energy.
Unfortunately, I couldn’t find data for UK energy. Not [past 2014](https://data.worldbank.org/indicator/EG.USE.ELEC.KH.PC?locations=GB), at least. And there are some other problems with the metric, especially regarding technology and trade, which probably have more effect on the curve.
Also consider that inefficient machinery shows up as higher energy consumption. Change in energy consumption might be a really useful stat, though. Countries don't usually go backwards in productive efficiency.
Do you mean the UK? The UK's stagnation does show up in GDP. In 2007, the UK had the 11th highest GDP per capita of any country in the world - even higher than the USA, and the 8th highest among countries with at least 1 million people.
UK suffers from a lot of the same problems as the rest of Europe, except unlike France/Germany, it's economy is less complementary to the US (finance/tech which US does better, rather than luxury goods or heavy industry)
To answer your question about German economy post WW2: immediately afterward it was very bad. So bad. Barter system, food rations, bad. Lack of workers (dead soldiers) was a big reason.
Some highlights: replace the old bad currency with a new one, strong central bank, strong regulations, strong social net, large tax cuts, remove price controls.
Without forgetting massive cash infusions from Marshall Plan, and then effectively making West Germany the most ‘socialist’ Western country to show the Soviets how great the West was
The Marshall Plan only gave $1.4 billion to Germany and it was actually notably underfunded compared to places like France or Italy. It was just politically contentious to send money to Germany after the war. Meanwhile American corporations began to reprivatize (after Nazi nationalizations) various industries even as the war was still ongoing.
American corporations also lobbied against the punishing Morgenthau plan, instead pointing out how profitable an industrial Germany could be as an ally. In part because they preferred the factories and markets of Germany to exist rather than being picked apart as they were in the East (where they were largely shipped into the USSR.) Hoover, a pro-business Republican, was key to stopping it and coordinating such efforts.
Meanwhile both the USSR and US actually opened fire on protests and union demonstrations because they saw it as civil unrest. The USSR, being the USSR, was much more brutal and at one point ran over organizing workers with tanks. They also squashed the plans for a general German union. The unions had to wait until Allied forces left to reorganize. Likewise there was minimal welfare in Germany until the 1960s and the victories of the Social Democrats. But this was after the economic miracle. The miracle started in 1950 while the SDP victory was 1959 and governance in the 1960s.
A clarification: there was minimal welfare in the 50’s compared to what was implemented in the 60’s, but pension insurance, unemployment insurance, and health insurance were all reestablished by 1951. So minimal welfare, but by the standards of the world in the 1950’s, not a minimal social safety net.
Post-war Germany had among the lowest per capita spending in real terms and the highest as a % of GDP because GDP had collapsed after WW2 so even relatively minimal benefits represented a high percentage of GDP. As the economy grew this percentage dropped until the 1960s welfare expansion.
There is the additional wrinkle that those benefits largely applied to formally employed people which started as a relatively small percentage of the workforce post-WW2 and also grew over time.
So the miracle started with weak unions, limited welfare, and low formal employment in a destroyed economy. Over time unions reorganized, formal employment increased, and welfare as a percentage of GDP decreased until the 1960s reforms.
Edit: I'm not exactly disagreeing with you either. Just clarifying the specifics.
Hmm. According to the rather excellent Beyond the Wall by Katja Hoyer, stalin was broadly sympathetic to a unified Germany, albeit a demilitarised one. It was the west and the GDR itself that were mostly opposed.
I'm not specifically familiar with Katja Hoyer. However, this is the so called revisionist school of the occupation. Stalin did indeed make such an offer. The west thought it was insincere and an attempt to score a propaganda victory. There was a forty year long debate over whether it was sincere or not.
With the fall of the Soviet Union, the Soviet and East German archives confirmed the traditionalist school was correct: it was insincere and an attempt by Stalin to blame the west for Germany's division. There's still a few revisionists hanging around repeating the Soviet propaganda (maybe Hoyer is one of them?). They mostly peddle conspiracy theories that the records are falsified by the west.
Can you point to the part where 'strong regulations' and a 'strong safety net' played a role, and how? Because it's not there in the wiki article, or in any of the accounts that I've read, which do refer to the abolition of price controls and tax cuts.
Quoting from Social Market Economy on how that works:
"The main elements of the social market economy in Germany are the following:
- The social market contains central elements of a free market economy such as private property, free foreign trade, exchange of goods and free formation of prices.
- In contrast to the situation in a free market economy, the state is not passive and actively implements regulative measures. Some elements such as pension insurance, universal health care and unemployment insurance are part of the social security system. These insurances are funded by a combination of employee contributions, employer contributions and government subsidies. The social policy objectives include employment, housing and education policies as well as a socio-politically motivated balancing of the distribution of income growth. In addition, there are provisions to restrain the free market (e.g. antitrust code, laws against the abuse of market power and so on). These elements help to diminish many of the occurring problems of a free market economy."
Quoting from Ordoliberalism about the role of regulation:
"The concern is that, if the state does not take active measures to foster competition, firms with monopoly (or oligopoly) power will emerge, which will not only subvert the advantages offered by the market economy, but also possibly undermine good government, since strong economic power can be transformed into political power."
This is generic stuff that is highly debatable. I'm asking about the economic miracle specifically, where there are very strong casual links to the price control abolition and less strong but still reasonable links to the tax rate reductions. I wanted to see if there was anything comparable on the things you've put into the same categories.
I didn't put them into the same categories; the people who designed and implemented the public policy did. They didn't want any of the Nazi/Soviet planned economy nonsense, but they also explicitly didn't embrace laissez-faire capitalism, and thought it important that the state "actively implements regulative measures" and include "provisions to restrain the free market (e.g. antitrust code, laws against the abuse of market power and so on."
It seems that you don't think having regulation against monopolization of markets is an important part of the societal structure, but the architects of the economic miracle did think it important, which is why I included it in my brief summary. Similarly for safety net.
See an exchange between Erusian and myself upthread for additional interesting info on unemployment insurance, pension insurance, etc.
ps typo alert: I think you mean "causal" instead of "casual."
Thatcher sold off huge amounts of public housing under the Right-To-Buy scheme, to the people living in them, at massive discounts. This was very popular, since it was basically giving away cheap houses, and bought Thatcher a lot of the political capital she needed to enact the rest of her agenda. In fact, it converted a lot of people into Conservative voters, since people who own property have a reason to protect that property.
However, it meant that the government no longer owned any public houses, and Thatcher certainly did not intend to build any more. It was a one-time-only deal, made for short-term political gain, and a terrible investment in Britain's future. The government had essentially sold off a lot of valuable property at below-market prices in order to create a bloc of lifelong Tory voters, permanently shifting Britain's politics in a Conservative direction while also leaving it without the capital it needed to invest in future generations of Britons. Hence the age gap in British voting patterns now.
The whole 80s neoliberal revolution was like this. The reason America's national debt is so high now is because the Reagan administration completely abandoned fiscal discipline, tripling federal debt in order to slash taxes without having to totally dismantle social services. Basically, the government took out a huge loan in order to buy long-term political support from what would become the boomer generation, guaranteeing them constantly increasing property values for the rest of their lives. This is coming apart at the seams now because the boomers - while remaining completely bought in to 80s conservatism - are getting old now, and there's not enough money left to do it again.
The old British people who are now fucking up the country were deliberately shaped into a constituency of Tory voters by Thatcher in the 80s - not just through Right-To-Buy, but through a whole range of other means. They were guaranteed all manner of special privileges - notably, constantly increasing house prices - in exchange for their complicity in dismantling the social-democratic institutions of the post-war period. These special privileges were expensive and came at the cost of long-term investments in Britain's future. Hence, the state of the country now.
These analyses are way, way too macro to capture the malaise here on the ground. I'm a Canadian immigrant to the UK, and the *feel* of the two places is radically different. There are a lot of things I like about the UK, but it does feel like the country is going to the dogs.
- Teachers, doctors, nurses, have all had real terms pay cuts of 20-30% since the financial crisis - the educated backbone of the society can't afford a decent life on two full-time salaries. Inflation just has not been matched by salary increases (junior doctor table here: https://www.bma.org.uk/media/6134/bma-ia-pay-restoration-methodology-13-september-2022.pdf)
My wife is a teacher, is literally one of the best teachers in the UK (they're formally ranked), is making as much as a teacher can make (there are various top-ups for extra responsibilities, excellence in teaching, etc), and if we were both on her salary we couldn't afford to buy a modest terraced house and send our daughter to nursery.
- Speaking of that, the UK has some of the highest childcare costs in the world: Many people I know, who are passionate about their jobs, literally can't afford children and to keep working. These are university-educated professionals doing practical work (engineering, medicine, etc)!
- This sense of malaise goes down to the individual level: A record number of people are recorded as being out of the labour force due to long-term illness. Some of that is related to the wait list point above, but much is fuzzier, even though formal 'unemployment' is quite low. https://www.independent.co.uk/business/unemployment-statistics-sickness-ons-b2339882.html
Whilst long-term sickness is biggest amongst the older, school refusers have shot up, to now c.20% (!) of students missing a large number of classes (>10%) without good reason
-UK companies don't really believe in the future. I work for a UK-based multinational bank, and despite a few flashy programmes, we're running on ancient computers and they constantly skimp on training - it's the second-worst in the G7, after Japan (which doesn't even have very many young people to train, and is notoriously averse to digital solutions)
- This is harder to capture in macro data, but the *quality* of many things are shockingly bad in the UK. Houses are not only insanely expensive versus salaries (>10x in London), but just bad quality - drafty, moldy, shoddily built, and small. Cars are mostly still manual. Doors use old bolt locks. Street cleaners are manually pushing things around with a broom. A stunningly low proportion of homes have dishwashers, or washer/dryers.
- There so much litter, in a way I haven't seen in other developed countries. People just throw their trash on the floor. It was already surprisingly bad when I arrived in 2013, and has gotten materially worse since.
Good summary, the housing thing is shocking indeed vs continental Europe (must note it’s pretty similar here in Australia, currently freezing in uninsulated house with poor heating); litter thing is also a good point, truly terrible and awful in UK, but has been for long time: used to travel there as kid in 80s/90s, and coming from France it was always a shock, would be interesting to see some socio-cultural analyses of littering in different countries (for instance, usually very low in Australia, though Melbourne is a tad filthy)
My pet theory, it is all because of the Big Tweed. The classic Western (male) sartorial etiquette that originated in Victorian Britain (for men: shirts, waistcoats, suits, and of course, tweed) are well-suited only for wearing in a drafty British house in typical British climate. So the draftiness must go on lest the Savile Row tailoring collapse. My experience of suits and similar is that they are often quite uncomfortable in a modern insulated Scandinavian house, typically designed so that residents may wear t-shirt all year around if they wish.
There is a passage in Dostoyevsky’s novel Idiot where the title character remarks that ”abroad” (he has just returned from Switzerland) the houses are colder in the winter than in Russia (where the weather is colder).
If it’s not cold enough to kill people the developers are not going to put much effort into fully locking down the house. Similarly very few houses have air conditioning which is becoming more of a problem.
Great summary! I was wondering how this compares to Canada in your experience. I was just reading similar complaints about Canada - mainly about housing prices being wildly out of reach.
I know people have long explanations for everything, but my sense is simply that it is too damn hard to build property.
This (i) makes office space expensive so hurts employers, and (ii) makes life very very very expensive for everyone who rents or tries to buy housing.
I work in the same industry as my dad, and I earn roughly what he earned at my stage in life approximately 30 years later. Meanwhile, I paid 3x for my first house what he paid for his equivalently sized house in the same area.
Property prices have squeezed money out of real incomes, and the government have responded by raising taxes to try to weakly subsidise housing (disincentivising work and businesses) without addressing the root of the problem, the planning system.
We also waste a disgusting amount of money on a totally dysfunctional health system, that is beyond a joke and is unfit for purpose. At some point, people will wake up and stop worshipping at the altar of the NHS, realise it is an idiotic system that does not incentivise efficiency or outcomes, and we can release massive amounts of money into a productive healthcare system.
So, planning restrictions, and the NHS. My two cents.
“Most people's savings are locked in housing, a non-productive sector. “
This is wrong on two counts. No money is “locked” in housing. Every purchase price is a sales price. At a national level, the UK cannot invest more in housing except by constructing more physical housing. I don’t think they’ve done too much of that. They’ve done too little.
Is housing not productive? What if I told you it was a factory working 24 hours a day, 7 days a week to keep you warm and dry?
Exactly. The number of people calling housing 'unproductive' in this comments section has made me realise that most people don't really know what 'productivity' means!
Yes it's quite strange. Someone has to build the houses too, the don't just appear out of thin air. Then people need to be hired to maintain them, expand them, furniture is need to fill them, energy to run them, etc.
The vast majority of the stock of housing in the U.K. is old, not new. Building creates jobs and adds to the housing stock, buying a second hand house doesn’t do any of that. In London you are probably not buying a newly built house.
And of course locking up money on second hand housing is unproductive - if that money went to industry it would increase the number of goods create. This is hardly a radical economic idea.
We have several citations of "austerity" in the post and the comments -- have we established that austerity actually *happened*? When I look at UK government spending (https://www.gov.uk/government/statistics/public-spending-statistics-release-july-2023/public-spending-statistics-july-2023), the only decrease I can see on Chart 1 is from the peak of pandemic spending, and that decrease is still to a much higher spending level than pre-pandemic. Austerity in government spending seems to mean that spending increases less quickly than someone wanted, not that government actually spends less.
I have heard pundits for many countries refer to austerity, but that austerity (almost?) never refers to lower government spending. At most, it refers to slowing the rate of increased government spending.
Either way, is there a reason we would expect increased government spending to be a driving factor in economic growth? Government money comes from somewhere (taxes), and GDP=C+I+G+(X-M). Increasing G usually comes from taking money away from I. Unless we have reason to believe that government spending creates more long run growth than investment, we should probably expect increased spending to be negatively correlated with growth. Maybe there are countries where government investment is especially important, but do we have evidence for that in the UK?
Most discussions of austerity are in terms of reduced welfare spending and social programs. That is redistribution of wealth so it can be used for current consumption, not investment in future growth. You can argue that redistribution increases aggregate utility in the current year, but that seems at best neutral for future growth if the redistribution is shifting C around between citizens and negative for future growth if it converts I to C.
You have to take the charts as you find them, I guess, but many financial charts are intuitively clearer if the vertical scale is log rather than linear.
The UK speaks English, so it’s navel-gazing is more accessible; beyond that, most of this is the general European stagnation.
The caveats to this are that the UK is a bit (not massively) more unequal than other developed European countries, and has much looser employment laws; as such, it has less unemployment (particularly youth unemployment) but more low-wage workers. It’s also got lower public investment, and is inexplicably in love with a worst-of-both worlds model of semi-privatisation which tends to reduce private investment in infrastructure. This isn’t a huge real effect, but crucially it makes everything look crap because no-ones incentivised “make it look nice” or improve user experience. The result is everything seeming more late-Soviet than it is.
Finally, the universal decline in politics manifests itself in the UK as two groups of underwhelming relics whom no-one expects to meaningfully change anything. This probably isn’t a fail-state compared to everywhere else, but adds to the aesthetic aura of doom.
One thing that has not been mentioned here at all is income inequality, where the UK takes second place among developed countries, just behind the US. I think that a generally slower economic growth that is also absorbed by the top 1% to a greater degree can feel like economic decline for most of a countries inhabitants.
I couldn't find any nice graphs comparing income inequality over the past years of different EU countries, so I'm not sure if there is something unique going on in the UK.
Two remarks, unrelated to each other but related to the post:-
1. The first four paragraphs of AH's comment (rentier/monopolistic economy, non-productive investment, dependence on cheap immigrant labour, property bubble system trap) exactly fit New Zealand. And yet the charts seem to pick out NZ as doing well,* while the UK is doing badly.
The difference between the UK and NZ is that in 2008 NZ got a Free Trade Agreement with a huge new economy, China, while over the period in question the UK slowly decided to erect trade barriers against its largest markets and suppliers.
* It doesn't feel like that, to someone in the lower half of the income range. My grocery bills have doubled since pre-Covid days, and I no longer buy expensive brands or foods (meat). Income inequality, or at least well-being inequality, seems to be skyrocketing. My housing and other core costs have increased too; the sole exception being medical prescription costs.
2. Just like the Kaya Identity for global CO2 emissions, there is a GDP identity:-
GDP per year = number of people working, times hours worked per person per year, times number of value-producing operations per hour, times value per value-producing action. Employment, hours, work intensity, and "productivity".
(GDP/year is then spread over all people, including children, the aged, and others not in work, to arrive at "GDP per capita".)
All of these components need to be examined. (I'm not doing any investigation here; I'm just writing some introductory notes.)
For employment, looking at Unemployment is highly** misleading; a better indication of the health of employment is "number of prime age (25-54) males in employment". (It's still women who get taken out of the work force by child-bearing and -raising, and there seem to be cyclical (cultural?) factors at work there. So to focus on employment robustness, males are an easier indicator to use.)
In Britain's case, "the 25-54 males in employment" chart on FRED dropped two full percentage points at the start of Covid, it and has only recovered one of them. Everything else being equal, there's half the explanation.
FRED has discontinued its chart of average annual hours worked per employee, but it seems likely that the downward trend has continued over the last decade.
Worker utilisation, or work intensity, numbers are the hardest to come by, but they are critically important. Here's an explanation of what I'm talking about: Say a Costa barista was making 100 coffees in an eight hour shift, but now makes only 80 on average. Or a hairdresser was averaging ten haircuts, but now does nine. They're working the same number of hours, and they're employed, but output is lower, because demand has decreased. Likewise, if a salesperson for Acme Widgets used to write five sales-related emails per hour, but now writes only four, her work intensity has reduced. (Thanks, IT! The new cloud-based AI system is sooo good, really. Even if everything now takes three times as long to do, and re-do, and re-do...)
The reasons why this happens at an aggregate level can be manifold and complex. Enjoy your dive into this rabbit hole. You'll be groping in the dark, mostly; economists are astoundingly lazy, and won't work on anything if the data are hard to come by, even if it's important. Drunk, lost keys, streetlight.
Now, "value per value-producing action". For a barista or hairdresser this is easy: the average sale price of coffees or haircuts sold. Perhaps customers are going for cheaper options. For a security guard? Hmm, that's trickier.
At an aggregate level changes in this figure reflect changes in industrial composition, the relative size of industries. If lots of people in the UK have moved from (say) high-value industrial machinery manufacture to (say) low-value Amazon order fulfilment, they may be still employed, and working the same hours, and working at the same intensity (harder, even), but producing less value than they were before.
This is another rabbit-hole in which to burrow. Enjoy!
** I originally wrote "quite misleading", but this is an American site, and "quite" is likely to be misunderstood.
This might be a local thing, but in the USA GDP is generally defined as the amount of new finished goods and services sold multiplied by their price. Often this is calculated by C(consumer spending) + G(government spending) + I(investment) +N(net imports and exports), although that is more an accounting identity.
Generally though the hours worked per worker doesn’t really come into GDP as opposed to productivity.
What, exactly, does GDP tell you? If I manage to make a car for half the cost that it went for previously, that's an advance. Does it show up in GDP if I don't make more than twice as many cars at the new price? If people buy the same number of cars at a lower price and then use their excess cash to purchase other goods is that neutral? Or a gain in GDP?
GDP, as I understand it, gives zero or negative value to technological improvements. That seems a noteworthy blindspot.
I recognize that adding a person to the population tends to increase GDP, and countries with faster growing populations will show increased GDP growth, yes? How does population growth tend to impact GDP per capita, though? There was a fear that some developing countries would have such explosive population growth that they couldn't develop economically. That sounds like a scenario where GDP growth could hide some deeper problem, right?
If you can produce a car of equal quality at half the price, the benefit will be reflected in real income. Consumers purchasing power will increase as the cost of goods decreases. If you look at nominal GDP statically in your example, yes it would go down if you sold the same number of cars at a lower cost. GDP at PPP would pick up the increased standard of living for the reduced cost of the same good though. Also you can expect that a car being half the price would pick up a large chunk of market share so GDP may actually go up with increased sales.
Every economics course I ever took emphasized that nominal GDP was not a very good measure. Most people look at adjusted GDP figures if looking at GDP at all
It should be noted that income inequality is higher in Britain than in France, so when they have similar GDP per capita, your median Pierre is better off than your average Peter.
AH, whose comment you quoted, gave a good summary of the property-related reasons for longer term decline, AIUT.
But in recent years, say the last thirty, another factor has also come to the fore: Successive governments' ever more determined and desperate efforts to "game" the headline GDP figure by increasing public spending, which is included in this pernicious and outdated measure of national prosperity.
The result of the perverse incentive to increase public spending is a chronically bloated and inefficient public sector, such as the rotting albatross round our collective necks called the NHS (National Health Service), huge rates of immigration both legal and illegal (which somehow increases GDP, although I'm not entirely sure how), and various massively expensive and near useless white elephant projects such as HS2 (a Victorian-style rail project that somehow strayed into the 21st century), and of course above all a voracious insatiable appetite for the money to fund it all this public spending. In relation to the latter, most of our large companies and assets have been sold to foreign buyers, and taxes are currently at record levels. So it seems like this GDP Ponzi scheme is fast approaching a denouement.
It's a wonder that institutional investors don't twig that overall GDP (and not even GDP per head) is a rotten measure of prosperity. I suppose the obvious answer is that they know this all too well, but don't want to rock the boat and risk reducing the value of their investments.
Brexit did have a short-term small adverse economic effect, which even the most ardent Brexiters realised at the time of the vote was inevitable. But some politicians and most of the "high-brow" Remainer-biased media (in the UK and the US) have greatly exaggerated the effect and continue, ever more unconvincingly, pointing at Brexit as the reason for all our woes. So I would treat that with a pinch of salt. The big picture is that the UK is really no worse off economically than most other EU countries. We have been agreeing trade deals far and wide ever since we left the EU, which would have been impossible had we still been shackled to it!
> The result of the perverse incentive to increase public spending is a chronically bloated and inefficient public sector, such as the rotting albatross round our collective necks called the NHS
The system that's twice as efficient as the US system?
> The system that's twice as efficient as the US system?
Wow! And that is with the US pinching a lot of our best expensively-trained UK doctors and nurses (so we're told).
I don't know much about US Health Care. But I gather its main expense is the sky-high medical insurance premiums which professionals must pay to cover them for litigious lottery win level negligence claims.
Whether or not the amounts awarded are generally well founded and proportional I've no idea. But I suspect that in many jury-decided cases the sums are punitive and absurdly excessive.
> HS2 (a Victorian-style rail project that somehow strayed into the 21st century),
If you somehow could rebalance London and the Northern cities, that would automatically help with the housing problem. Admittedly, there's a lot to the "somehow".
I don’t understand why remote working isn’t considered part of this. Once it’s established that well-paid jobs are available in much of the country, northern cities become more attractive and you have a greater density of skilled people to create new businesses etc.
What you also have to factor in when talking about decline is stuff that doesn't show up in GDP figures. The NHS is in a horrid state - to get seen by a doctor, you have to phone the GP surgery on the day you want an appointment, usually when it opens around 8:30am. Everyone is doing this so you are put on hold for up to an hour. Then you have to explain your complaint to whoever answers the phone, and it gets triaged by a nurse - then if you are lucky you get an appointment or more likely a call back from the nurse. This system seems to be an informal way of rationing healthcare so only people who don't have to go to work or drop kids off at school can use it (i.e. mostly old people). Transport infrastructure is also falling apart. The government can't seem to get on top of potholes and there are always problems with the trains, moreso it seems than a decade ago.
Most British people don't look at GDP figures or bother much about how other countries are doing, but still complain of a sense of decline. Its also worth noting that national figures don't show the regional picture - most of the industries doing well are situated in a triangle between London, Oxford and Cambridge. Outside of that the economic situation is comparable to Eastern Europe.
Brexit is too recent to take the blame for this IMHO - long term demographic trends are more likely. We are an aging society that has chosen to pay for healthcare in a way that can get really expensive. Elderly voters have used their electoral power to secure continued free access to healthcare (albeit with rationing e.g. above) as well as absurdly inflated state pensions via the triple lock. The cost of keeping the postwar generation happy drives taxes higher and squeezes out investment.
Its cheap per person but its very comprehensive, and it all comes out of taxes and it adds up to about £200 billion a year so thats about £7k per household per year, for healthcare that you often can't use even when you need it. You end up having to go private and double paying for healthcare. Which, of course, adds to GDP...
Only if you can get it. You might end up being on a waiting list so long that you die. Thats the point I was making - the huge sums paid to the NHS show up as GDP but that doesn't mean healthcare is actually happening. At least not to the extent it used to.
The argument for NHS efficiency has nothing to do with GDP: it's based on the amount paid into the NHS, and outcomes defined by measures such as lifespan. If a lot of people were dying in waiting lists, that would show up in the outcomes, and you would no longer be able to say that the UK and US have roughly equal outcomes.
One sort of problem is that (once you have picked the low hanging fruit of childhood vaccinations, sanitation, and antibiotics), the ability of `modern medicine' to increase lifespan at the population level is fairly limited, and can be easily swamped by the effect of bad lifestyle choices.
A lot of comments have highlighted that issues around housing are not unique to the UK, with all of the anglosphere suffering from awful planning and huge housing costs. However, I think there are a few particular characteristics of the UK that make this more important.
First, the UK is simply much more densely populated than the US, Canada, Australia or NZ. Housing here has always been a lot smaller than similar countries (European housing as well) which will surely contribute to a poorer feeling.
Similarly, UK housing stock is very old, with a lot of pre-WW2 housing still in use. This lowers the quality of British housing relative to other nations.
So you've got older, smaller houses than elsewhere with less land. I don't know if there's any data on this, but I would also speculate that the relative shortage of land meant Britain was starting from a higher point with respect to housing costs, but can't be sure on this.
But it's not just a shortage of land - it's a shortage of productive land. The town and country planning act of 1948 has already been mentioned in an earlier comment as being particularly destructive. The creation of "the green belt" surrounding all of Britain's major cities essentially calcified them permanently in their 1950s states, preventing any housing from being located in the most productive areas around cities. I think it would be interesting to look at median housing costs for e.g. the 5 biggest metro areas in each nation rather than the whole nation, or to look at % of total population living in big cities for different countries. I suspect the UK would come out very poorly. After all, anyone can name several major metro areas for the US, Aus, or Canada, but the UK just has London - and even that city is far smaller than it should be.
I have written a few similar comments. I think it's an important point. In the US, and to a lesser degree canada, the political geography is more heterogeneous than the UK (at least from my US perspective) The difference in regulations between states or even between counties/cities in the US can be night and day. (Texas/Floriday vs California/New York is just the headline example). In the US, if a city wont let you build a housing development, there is probably one within 10 miles that will give you a tax subsidy to build it.
There are also many large cities in the US that had really big pollution declines starting around 1960 until about 2000. Chicago for instance, not just Detroit. They have a lot of existing housing that is under utilized (one person in a two bedroom, for example) which helps to lessen the impact of not building new units.
Inflation is high because the UK imports most of its food. Groceries like green beans routinely come from Kenya.
As for the structure of the economy, the UK’s remarkable political stability (plenty of strife and civil wars but no successful revolution) means much ownership of land is still concentrated in the feudal aristocracy, not least the royal family. When combined with a nominally democratic political system that protects their interests (leasehold never abolished, no property tax other than stamp duty on property sales the feudal never engage in), it’s no surprise so much of the economy centers on rent-seeking, often literally.
It didn't last, the monarchy was restored, and it was a revolution based on religious fanaticism, not a change in the social pecking order with redistribution of land. Compare with the French Revolution where the former aristocracy basically lost everything, or gentler versions of land reform in Germany, the Netherlands etc.
Huge swathes of London's most valuable real estate are still owned by the Dukes of this or that, with people not owning the land under their houses, only renting under leasehold, a feudal relic of a legal instrument originally designed to bind serfs to the land.
If you are judging it in economic terms, then the inheritance tax reforms of the early 20th century that removed much of the landed gentry must be considered.
The English Civil War ultimately achieved a constitutional monarchy and the supremacy of parliament, and headed off the possibility of a Louis XIV style imperial monarchy.
Louis XIV is the man who made the French Revolution possible by forcing the rebellious French nobility to relocate to Versailles and cutting them from their provincial power bases. The Revolution in turn ensured land reform, ended the practice of firstborns inheriting everything and of course many other measures that ended feudalism once and forever to the benefit of an ascendant bourgeoisie (Louis XIV is also the first French king to appoint commoners like Colbert as ministers over corrupt noblemen like Fouquet).
In the UK the power of hereditary peers was only (somewhat) curbed by the Parliament Act 1911, but their privileges, including fiscal ones, are still alive today. Just witness how no government seems to keep its promises on abolishing the feudal practice of leasehold (it's described as such left-wing firebrands as Sajid Javid or Michael Gove).
See Terry Pratchett writing about Sam Vimes' ancestor: they had a revolution, and now Ankh-Morpork doesn't have a king. But they got rid of the king, and left all the nobility in place who to this day retain their titles and wealth, and Vimes' ancestor was stymied in making any real, long-lasting change.
That's the fictional version of the Civil War in a nutshell.
Do you know if those green beans travel by plane or boat? Lots of produce is shipped to the US from mexico and south america, but mostly by train or boat which are cheaper transport methods than planes (or trucks).
But the same considerations would have applied with even greater force in the 18th and early 19th centuries, when Britain literally kickstarted the Industrial Revolution. The decline in productivity and focus on rent seeking is a comparatively recent development.
While by the end of WW2 lots of German men had died, the industrial output was falling, and the large cities were in ruins, the industrial *capacity* has not been significantly reduced because machines etc. could and have been sheltered from Allied bombardment - in fact, Germany's industrial capacity has been higher at the end of WW2 than at its beginning. Manpower and access to resources were the limiting economic factors in the end for Germany. Once these impediments had been cleared through political and financial support (Marshall Plan instead of Morgenthau Plan), and workers brought in from e.g. Spain, Italy, Turkey, Germany could quickly pick up the economic pace. Germany had the dubious luck of being *the* frontline in the Cold War and thus the USA saw fit to keep them as an armed, prosperous ally instead of an impoverished, defenseless enemy that might fall to the USSR.
Two surprising points of comparison between the UK and Ireland (only country UK shares a land border with, quite similar cultural background, same language etc.):
average UK wages are 44,700 dollars, average Ireland wages 76,000 dollars;
UK government debt 103% GDP,
Ireland government debt 55% GDP
This is no doubt a consequence of differences in inward investment and “Irelands open economy”, but the differences are pretty shocking!
North Sea oil is one of the free gifts the UK has...the other is the City, London's financial hub, which is dispoportinately large compared to the overall UK economy, and a very major contributor to it. If you want hard facts relating to the impact of Brexit, just look at the number of companies that have left the City as a result...
Yeah, I never know how to feel about this. I don't much like going back to the UK now; it feels cold and grey and stagnant to me. But I realise that that feeling is mostly a function of reading the news too much, my English parents getting old and grey, and the fact that I live in the tropics. In terms of hard numbers, yeah, it's not obvious that the UK is doing terribly.
Some of the arguments for the UK's decline quoted above seem completely backwards as well: AH suggesting that building lots of cheap housing is a bad thing stuck out as very wrong.
But the UK being in secular decline does seem like it might be true. Outside of London, it's hard to see what there is. I mean, there's culture. British writing and music remain awesome. But I don't know if that's enough to keep us a rich country.
Apart from the economy, the country is over crowded, it has become untethered from sources of identity which existed in the past, and immigration/ multiculturalism has largely had a divisive and demoralising effect on society.
I think there is also a really fundamental change in culture over the past 15-20 years - really starting with Blair/ Brown. A combination of reforms to taxation/ social security/ welfare/ employment policies; employment legislation and broader human rights (mostly imported from the EU); a massive influx of low-cost, but smart and highly motivated employees from the EU (now being substituted by non-EU immigration) that allowed companies to keep downward pressure on wages and avoid the need to invest in productivity; a high degree of complacency in our elites...all of these set the scene. And then more recently the importation of US cultural issues (BLM, ‘woke’) and the culture war that has caused; the incredibly generous fiscal response to Covid; terrible energy policy; the rise of the WFH culture - which has really set in in the UK to a degree I haven’t seen elsewhere; the stupid in-fighting over Brexit that keeps us re-fighting the last war while not concentrating on the future; and now the deeply embedded self-loathing over our history and our terribly confused response to unskilled mass immigration compound the malaise.
In short, while there are plenty of highly-motivated people, they seem to be wading through treacle in terms of the response of the broader population - and the answer to every problem always seems to be more government: we’ve run a massive deficit for years and there seems to be no prospect of that situation ever improving. Our population feels ever more socialist in its expectations and ideals.
I have three daughters at school/ uni: I very much hope they will have the courage to move abroad and make their way in a part of the world with more ‘get up and go’: I simply don’t believe we can turn this around until we really plumb the depths - and that will take years and much ruin.
Interestingly, many right-wingers in Germany complain about the same...though at least in terms of polling, Germany has moved to the right in the last two years while the UK has moved left...also, Young Germans don't seem to be much more left-wing than old Germans, while young British voters do...
"the deeply embedded self-loathing over our history and our terribly confused response to unskilled mass immigration compound the malaise..... the answer to every problem always seems to be more government"
I'm an observer currently outside the UK but these three points seem very much to get at the bizarre state of the nation.
- Britain has an amazing history, not least as the home of the modern world's prosperity through the industrial revolution, but it gets completely overlooked. So much richness, culture, conflict and achievement has been boiled down just to the topic of racism.
- When Australia faced illegal immigrants arriving by boat 20 years ago there was huge public support for stopping the boats even by various drastic means. The UK response is astonishing in this light, it seems people have become so used to immense immigration and uncontrolled social change.
- It seems if you don't support a govt answer to every issue these days that makes you a free market extremist
A lot of that is the currency fluctuations since 2008. type „dollar vs Euro“ into google and you will see that the dollar went from 0.71 euro in 2008 to 0.9 euro, almost reaching parity last year.
"lots of Germans died in WWII, but Germany remained an economic powerhouse"
I'm pretty sure this was not the case. I had a neighbor 'Tanker Fred' who was in the tank company trapped in Berlin in The Cold War. One of the things Tanker Fred said, (paraphrasing) "I could get a very nice meal, with drinks in a fancy restaurant. It cost three marks, which was about 5 cents US." I don't think that's the definition of Economic Power House.
"I’d be interested in seeing the 'government decided to sit on industries in 1900' thesis fleshed out more."
One way in might be to look at the history of British-owned car manufacturers. The UK went from having the fifth largest car company in the world in 1968, British Leyland, to having no mass production car companies with the collapse of MG Rover in 2005. One of the main reasons for this is the Labor government's strategy of cramming several smaller failing manufacturers into one big company with the primary objective of preserving jobs.
Lots of good points already but I think it's worth highlighting how some of them react with each other;
Firstly the 0830 charge to get a doctor's appointment, is that a good thing for productivity to have tens of thousands of people on hold for an hour any given morning and still not get an appointment?
Given that in the UK we have 7 million people on NHS waiting lists how much is early retirement from the workforce due to ill health masking employment figures. People no longer looking for work don't count towards unemployment.
Underemployment is another issue, some households aren't enough hours between two wage earners to get by. This means there are many working poor who are recipients of government welfare typically more associated with those unable to work. Food banks have boomed in the last decade and most recipients are in work.
Housing is a scandal; small by international comparison and poorly built houses which cost 8 or 9 times a median salary in all areas and as much as 15 times in parts of the South East and London. New home building is easily blocked at the local level by existing homeowners.
Some housholds with two graduates from this century can afford housing but typically they already have moved away from where they grew up to a larger city with graduate jobs in only to find after a decade they can't buy property there and then move further out of the urban area and end up facing long and expensive commutes back to where there job is (less so post pandemic in fairness).
Child care is so expensive that having two children in full time, full pay nursery at the same time can be like paying three mortgages each month. Or two mortgages on top of rent which may already be 30-40% of take-home pay. So people are not having children or additional children due to affordability issues.
By my count my wife and I have spent around five years of the median household disposable income on rent and childcare in the decade we've lived together.
The planning system means nothing gets built that could transform an area and provide thousands of new jobs. New runways, airports, train lines, nuclear power stations, reservoirs, solar panel farms, sewers, broadband infrastructure, fracking or on-shore wind - whether you think they would be positive, negative or neutral doesn't matter, none of it gets built. With the exception of one east-west metro line through London which no-one wants to repeat the success of elsewhere.
Add on top of this the fact that mortgages don't run on 10, 20 or 30 year fixed rates and people are anticipating extra payments of potentially £500 a month on mortgages as their fixed terms expire and they move to higher rates not seen since pre GFC- the same as a £10k pa pay cut for a household.
So yes, there's a sense of malaise and decline because on top of all this the Government appear not be interested in Governing. People who didn't want to leave the EU and people who didn't get the type of Brexit they wanted are unhappy, one outcome of that is that the recent crop of government ministers has been beyond appalling. You can't get an NHS dentist, there's rubbish everywhere, teenagers don't have youth programmes to keep them occupied, high streets are dying, the roads are congested, the government has spent billions on a smart motorway programme they seem on the brink of scrapping, threw millions at PPE that didn't work in the pandemic, covered up lockdown breaking parties in the heart of Government, had a PM that lasted less than seven weeks and still managed to contain the death of a well regarded monarch who was seen at least as a fixed point of continuity in people's lives.
Great comment, summarises many real issues concisely.
I read all ~360 comments here and it is the only one mentioning the looming mortgage crisis caused by 2/3/5-year fixed mortgage structure. I think it's a pretty big deal, millions of households will be hit, many of them are already finding it hard to make the ends meet. Some people on interest-only mortgages (who are usually poor) will start to pay 3x more at some point overnight.
>So maybe we can summarize Eric’s theory as “The British economy isn’t necessarily worse, but after Brexit, some goods cost more money, so the living standard affordable with the same amount of economic production has gone down.”
Sort of. A more precise formulation would be that the British economy isn't particularly worse in terms of international purchasing power, but is somewhat worse in terms of local purchasing power, with the latter being more indicative of cost of living and quality of life.
>Is this economically possible? Suppose that it costs more for Britain to import goods. Some of those goods will be raw materials, which will hurt industry, which will lower production, which should make market exchange rate GDP look worse. I don’t know enough macroeconomics to be able to tell if this should be happening.
It is economically possible for PPP GDP and market exchange rate GDP to diverge, which is a big part of why both metrics are tracked. In a "spherical horses in simple harmonic motion" world, we'd expect PPP and exchange rates to converge very quickly because differences in prices are arbitrage opportunities. In practice, PPP and market exchange rates tend to tell pretty similar stories for rich countries, but diverge by factors of 2-3x when comparing rich countries to poor countries.
The OECD's price level index (ratio of PPP to market exchange rates) for G7 countries ranges from 82 (Italy) to 125 (USA), and for all 50-ish indexed countries ranges from 37 (Turkey) to 138 (Israel).
An incomplete list of reasons for PPP and official exchange rates to diverge include:
- Currency controls: the official "market" exchange rate is actually the result of price fixing rather than market forces.
- Trade barriers, both natural (shipping costs, etc) and government-imposed (tariffs, quotas, embargoes, regulatory barriers, etc) preventing price differences from being arbitraged away.
- Differences in prices of stuff that's very hard (e.g. labor) or impossible (e.g. real estate) to import and export in the quantities necessary to arbitrage away price level differences.
Any discussion that doesn’t include the energy and housing situation is incomplete at best. The environmental stuff is way more detrimental than Brexit. But the ruling class in Britain likes that, and hates Brexit, so we don’t get a proper discussion.
An interesting theory explaining why things may feel worse than Econ indicators show: population is significantly undercounted, so per capita metrics are lower in reality than on paper: https://twitter.com/echetus/status/1682676824420253697?s=20
I’m confused by the claim that there are no checks via sea and rail. You get your passport checked getting on to Eurostar. I haven’t taken a channel ferry but would be surprised if they don’t check on either side there too. I don’t see why the government couldn’t use that data to generate an accurate view of who’s in the country.
There are no passport checks going to Ireland but still ID checks.
It's because Britain is systematically undercounting third world immigration: their official population is ~65 million, but their true population (estimated by grocery stores, waste management, healthcare utilization, etc) is almost certainly ~75 million. They literally estimate immigration by surveying random people at airports, even though they know that this massively undercounts the results. Of course nominal GDP goes up more than per capita metrics if you do this. And, of course, we all know why the government wants to put out official numbers which underestimate this kind of rampant unskilled immigration.
& if you have exposure to how most govt numbers get produced—eg the US census bureau’s “differential privacy” insanity, or the way the Social Security Administration just makes up fertility rates for its projections, or the huge amounts of insane discretion in BEA GDP accounting—it starts to seem uncannily credible.
I, an American on a rich Government grant, did my doctoral field work in British schools in the 70s.
The teachers were wonderfully patient and, whenever I would ask a headmaster how I could express my gratitude, she would suggest buying them dinner because, "They rarely eat meat nowadays”.
GDP is not a particularly useful statistic. It's more useful to track the difference between per capita GDP and median income. That's roughly what people use to judge their own economic condition. People feel better when they're both growing at about the same rate. When the median falls behind, they feel cheated, and a lot of people feel cheated these days. This goes for the left and the right. They just blame different parties and offer different solutions.
England is in worse shape than most. It had a colonial empire which has its own resource curse. The money just rolled in, and, even now, London is a financial capital for sheltering gains extracted elsewhere. This has stunted the rest of its economy, and the economic reforms of the 1980s did nothing to improve the situation. Worse, England has a class system. If you didn't go to the right schools, good luck getting capital, good luck building a new industry. England had smart people and a technical lead. You could get some interesting insight by pondering why The City never pumped money into new domestic industries.
Re; disposable income part of the challenge is that there are different real purchasing-power-parity deflators for different purposes.
Back in 2008, most countries had a high price levels for GDP relative to GDP (https://i.imgur.com/5zEyPba.png) compared to the USA (after controlling for the exchange rate), and this was particularly the case for private consumption (https://i.imgur.com/5zEyPba.png).
The UK also has a particularly high price level for non-discretionary spending, the "Cost of Living", hence the low figure for disposable income.
It's only when you get into the weeds of looking into the price levels of disposable income that you really see UK stagnation relative to OECD comparisons. GDP does tend to look a lot more normal.
And only when you look at this further in the context of an expanding levels of employment in the UK relative to peers that per capita disposable income stagnating means a reducing or at best stationary level of disposable income per worker.
You could alternatively look at consumption levels (rather than prices), and these do a bit better than disposable income growth... But that combines with an increase in household debt that makes them seem less than sustainable.
In general, the Tories have surprisingly actually been relatively successful in what they set out to do, which is that intended to reduce the cost of government and restrain its growth as a share of the economy, and get more people back into the workforce. (The price level of government spending is far lower than when they came to office, and lower than the USA).
But the larger failure is to encourage investment during the period of low interest rates, and to grow the economy per head. Particularly in the North, and areas outside London and the Southeast, whose decline offsets any growth in the SE. Privatization of utilities has generally failed to lead to sustainably competitive prices, and instead of investment, shareholders extract capital from privatized utilities that they purchased at relatively low prices.
The fear is that the opportunity to now increase investment and upgrade the technology base is now gone with the changes in the world interest rate environment, while we're left a nation with relatively high household debts and little ability to stretch further. There is also the fear that the Tories strategy of increasing employment and reducing the cost of government has now run completely into its limits of worsening public services and full employment with no more room to expand the economy that way. The concern is that the UK has become a low wage, high cost, high debt, low investment country and that any attempts to fix this would require major, serious expenditures that will push standards of living down further.
Britain, partly because of political choices, and partly because it is English speaking, has been a magnet for cheap imported labour since 1997. This has allowed both public and private entities to run down infrastructure for 30 years while maintaining prosperity and what happens when you do that is that suddenly you are just really, really unproductive. Brexit, Ukraine and Covid brought the moment of reckoning forward, but the underlying reality is a country where nothing works because cheap labour has been papering over all the cracks.
It's true that the United States has a lot of immigration, but it also has the global reserve currency, and its overall quality of immigration is much better. The only other western country that has as much as Germany, but that started more recently and, anyway, they are also falling apart.
> Most panellists think that Brexit remains the primary drag on the UK’s potential output this year. A small fraction cites poor labour force participation as a major constraint. Several panellists suggest public investments and R&D subsidies as a solution to boost UK GDP in the medium term. Most panellists believe a combination of policies would be the most effective way to achieve this objective.
Britain is an english speaking country. It collects good stats which are accessible to *anyone* in the world who speaks english. It gets analysed far more than anyone else and people can generally find what they are looking for in the numbers.
It has incredible challenges, not least a dysfunctional housing market, but it is not as crazy/bad as the commentary suggests
The feeling of decline in the UK is only partially captured by GDP figures, as it has a lot to do with the drop in the quality of public services. That said, the Mainly Macro post linked in the first paragraph correctly notes austerity and Brexit as the twin causes for the relative decline in GDP per capita. I would add the importance of financial services to the UK economy. The bubble in financial services in the years preceding the financial crisis inflated UK GDP figures up to 2008 and its collapse contributed to a fall in UK GDP in the period following the financial crisis.
The ONS (Office for National Statistics) has revised its estimates of the British economy upwards, and it turns out that, far from lagging at the bottom of the G7, the UK has been doing considerably better than Germany, and just a bit worse than France and Italy. Unless those countries also revise their economic estimates upwards, of course, which is perfectly possible.
I would not personally want to make any positive predictions about China's housing market until they're out of their current predicament
China, and the US and Canada, has much more space than the UK and many more cities with high performing economies. These give people more options to find higher quality work and/or lower cost housing.
I feel like... if we didn't already have a bunch of people saying "things were better ten years ago" with an implied "[when i was ten years younger]" we probably wouldn't be hunting for explanations as to why this was the case with all these charts
and if we just, like, looked at these charts without that context, we probably wouldn't draw the conclusion that things are getting noticeably worse at an abnormal rate
I have a sneaking suspicion that what's going on is ordinary Great Stagnation stuff. But when articles get written about France or Uganda or America declining economically, it feels like dry economic debate, whereas when articles get written about the UK declining economically, the articles become aligned along political lines, and the headline must either specifically blame Brexit, or specifically exonerate Brexit, and so it feels like a bigger question than it actually is. Or at least, a bigger question than other similar questions we might ask of other countries and other periods of time.
Essentially I think there's something related to privileging the hypothesis going on here.
I don't have a very high confidence on this, it's more of a nagging feeling
edit: also, the image displays an american flag burning, whereas the british flag is less on fire. i am upset about this.
This seems like the right explanation to me. If you can't make economic growth numbers a bit partisan issue why bother to talk about them at all?
Benefits of our some-time EU membership: our flags are still made to EU fire-resistance standards.
Benefits of our new freedom from EU membership: we can make our flags to the fire-resistance standard of our choice
Unless the flag makers are export driven.
Somewhat related, and I can't source anything to back this up, but all else equal the UK does seem to be the focus of more complaints on any given topic. So the same stagnation is more of a meme than in the EU.
Part of it is probably being anglophone makes it easier to scrutinize; as well as some post-colonial schadenfreude (definitely true of Australia & NZ but I can't speak for the US); not to mention that Brits (to their credit) are happy to moan and not particularly afraid of losing face.
I expect that France is being criticized by the french, and Germany by the germans. And they are likely complaining about the same things. But as a participant in the english-language debate, you are not hearing those complaints.
Much of the hand-wringing & complaints come from outside the UK though, which is hard to imagine at the same scale for France & Germany as they don't have a same-language superpower like the UK does with the US.
True. Another factor is the weird tendency to treat political parties in different countries that are in the same relative position in the political spectrum as if they are in the same absolute position. So the Democrats emphasis the supposed failures of the Tories, even though the Tories are likely closer to the Democrats on most issues than Labor.
A lot of Democrats aren't very close to the Democratic Party platform...just closer to them than to the Republicans.
Do they? A lot of sources cited here are British writers and British newspapers/magazines.
Yeah - there is not really a significant change. The UK did about as well as the countries to which it historically compared itself. Europe as a whole is stagnating. But the Wrong People are in charge, so you get much wailing and weeping.
You see the same thing in the US - we have a combination of:
historically high employment to population ratio - https://fred.stlouisfed.org/series/LNS11300060
and
historically high real median wages - https://fred.stlouisfed.org/series/LES1252881600Q
But the extremely online describe the present as something akin to the Great Depression.
Calling it a historically high employment to population ratio is very misleading, the US shifted from a mostly male working population to a male+female population from the 1950s to through the 1990s with the peak in 1995. The last 15 years have been lower in almost every year than any one year from 1990 to 2007. So yeah, compared to before women were fully integrated into the workforce the ratio is high, but the last 15 years were substantially lower than the previous 17. That is a legitimate feeling of decline.
Further you only link 'prime aged' not the actual employment to population ratio- which has shifted a ton more, and not entirely with just boomer retirement as it peaks in 2000 at 65% and drops to 58% in 2010- and those are the years that the oldest boomers were 55 going to 65 and the average boomer was more like 45 going to 55.
I chose the 25-54 series because the US is much older now than in 2000. Most of the decline in the overall employment to population ratio is due to aging. Limiting the comparison to prime age workers largely (but not completely) compensates for that change.
See Figure 1 in this: https://www.piie.com/blogs/realtime-economic-issues-watch/adjusted-aging-us-employment-rate-continued-rise-above-its-pre
This is false, the employment to population ration dropped sharply from 2000-2010 but the % of people who were 65+ in the US barely changed from 1990-2010
https://www.census.gov/library/stories/2023/05/2020-census-united-states-older-population-grew.html#:~:text=In%202020%2C%20about%201%20in,million%20(16.8%25)%20in%202020.
Not only that but the % of the population that was 65+ was INCREASING from 1980-1990, which was a period of increasing employment to population ratio (and also increasing from 1950 to 1990, the whole time with increasing EtP).
Demographers have been telling this story for years, and its an outright falsehood- marginal workers have been getting squeezed and those marginal workers are 55-65 and 18-24, so they get dropped from 'prime age' (that's what prime age means- ie non prime age = marginal = first people on the block when things get worse).
What is false? The US is much older now than it was in the 1980s. Older people work less.
They measure the employment population ratio for 55+ as well.
https://fred.stlouisfed.org/series/LNS11324230
Some over 55s left the workforce after covid. But this just means that they are not seeking jobs. Which probably contributes to the amazingly low unemployment rate.
Older people work less is not the same as 'older people work a consistent amount'. Your link shows that from 1994 to 2008 55+ workers lfpr went from 30% to 40%. That is a 14 year uptrend which ended in the spring of 2009 and flat lined thereafter. Possible a coincidence that it coincided with the end of the '08 recession. Meanwhile labor force participation for 16-19 went from 52% in 2000 to under 35% in 2010, and lfpr for 20-24 years olds went from about 78% to 71% over the same time span.
The employment to population rate collapsed from 2000 to 2008 and this was emphatically not due to the aging of the us worker- because at the time the % of the population that was 65+ was almost flat, and the lfpr of 55+ year olds increased by a large amount and the lfpr of 16-24 year olds dropped precipitously.
Real median wages is also misleading, as it shifts heavily with demographic changes. If you have a large number of young workers entering the workforce (or previously unemployed persons) then you get falling real wages as the entrants are below the median in earning power, but on net you have real per capital wages rising. In the linked graph we see 1979 as the high water mark for real median wages until 1999. So either everyone is wrong about 1980-2000 being a period of prosperity or real median wages is a poor way of looking at things- hint its the latter.
Put together we have a smaller percentage of the population working now than in 2000, and older workers on average than in 2000, so fewer people making a larger portion of the income- in short a depression for people not in a better demographic situation.
Go here: https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-people.html
And search for table p-8. This has median wages in 2021 dollars broken out by sex and age range. Generally speaking, the male 2021 median wages were comparable to the male 2000 wages. Wages sucked after the dot com bubble collapsed in 2000 and after the great recession. But they have generally recovered.
Yes- and if you lose 10% of your income for 10 year and then 'get back to even' for 1 year that is what feels like, and fit the definition of, a depression. You have to integrate to get to total losses, otherwise making $100,000 a year at age 30, then being unemployed for 10 years and then landing a $150,000 a year job at 40 would be just toats fine with everyone. Such a person isn't actually making 50% more than they were 10 years ago, they made $1.25 million dollars less over 10 years than they expected to.
Endpoint analysis is entirely incorrect in this application.
In several ways "things were better ten years ago" is a true statement, though it sure isn't a global truth. At that point Moore's law was in full swing, and several kinds of prediction were easier.
For the equivalent at the current time we need to guess where AI is going. We don't really know it's capabilities, how it will be used, whether it will threaten us (it will...if only by taking previously reliable jobs), etc. So it's not just "things were better when I was younger", it's also "things have become less predictable". (OTOH, ten years ago things didn't *feel* all that predictable, so this my just be hindsight.)
Note: I'm intentionally leaving out lots of contentious issues. The tech one seems (to me) like something everyone will agree with.
As for Britain, I don't think we've yet seen the true costs of BrExit. And I don't really buy the explanations of the powerful folk who were in favor of it as to *why* they were in favor of it. I do think it plausible that some of the financial types pushed it to set Britain up as a place to whitewash dirty money. Other groups has other motivations, many of them equally disreputable, but not in conflict. It was clearly pushed by lots of people who thought that blatant lies were a fine argument...so I also doubt the rest of their ethics/morality/honesty. This may mean I tend to believe disreputable stories about them without sufficient evidence.
> I don't think we've yet seen the true costs of BrExit.
Because? It's happened, it made no difference. Remember there were two predicted "doom points":
1. The vote itself. The Treasury i.e. the British government predicted this would cause a massive recession with ~800,000 job losses due to greater uncertainty. Reverse happened, nobody GAF and the economy grew, unemployment fell. Experts had egg on face, as always, nobody in elite media was willing to recognize this or engage with it outside maybe the Telegraph.
2. Actually leaving. No obvious impact, possibly drowned by lockdown effects. Some studies suggest exports to the EU fell, but then rebounded back to prior levels in less than a year. Very unlikely to be noticeable by anyone.
Leaving the EU was never going to have a big impact on the UK because the supposed benefits were largely fake. EU never cared to harmonize the services market, where the UK was strong, it only cared about goods, where France/Germany are strong. So the benefits were largely one way. France/Germany got the ability to beat British companies, the reverse was much less true. Even rules that were presented as making services trade easier were fake, see how the EU treats "equivalence" in financial law. It has nothing to do with what the laws of each country say, it's a purely political favor to be granted and revoked at will.
In contrast the GFC wrecked everything. All the graphs are very clear on that point. 2008 is where things go off the rails. Bad event, bad response.
As for lying, lol, this is exactly the ideological nonsense that leads to everything in Britain being blamed on Brexit. Remember that the population were told by the Prime Minister himself that he'd levy an absolutely massive emergency tax if Leave won immediately impoverishing everyone. Something like £15B in tax rises and £15B in spending cuts. This threat seemed credible because he also stated clear as day he wouldn't resign if Remain lost. Fortunately the public correctly decided he was a lying liar, Remain lost and he immediately resigned. No emergency tax, nor was one necessary.
That was just one of many lies told by Remain campaigners, but was BY FAR the most important and devastating. Nothing else even comes close, anything else said by either side was just irrelevant compared to that. The whole concept of a referendum makes no sense if the government plans to financially punish the population if it doesn't get the outcome it wants.
> Britain seems to handled inflation reduction very badly.
Keep in mind that they have over 2.5 trillion reasons to do so. With a national debt over 100% of GDP ( https://en.wikipedia.org/wiki/United_Kingdom_national_debt ) policymakers have a strong incentive to screw citizens over by pushing for high-inflation policies.
https://robertfrank.substack.com/p/why-the-national-debt-matters
But the UK isn't particularly distinctive here. It's actually on the low end of G7 countries: https://worldpopulationreview.com/country-rankings/countries-by-national-debt
USA, France, and Canada are all between 110% and 130% of GDP, UK is just below 100% while Italy is at 150%, while Germany is off the charts low and Japan is off the charts high.
This is true. Debt-to-GDP ratios are all over the place. Now plot debt-to-GDP ratio on one axis and pro-inflation policy on the other and see what the graph looks like.
Japan has the highest debt and lowest inflation.
I didn't say "inflation rate," I said "pro-inflation policy." Japan's government has been desperately trying for decades now to generate inflation, and failing.
Japan's debt is a-typical in that it's being held mostly by the population. Lowering it through inflation screws over your own people, so it was never going to be the first choice.
I think the answer to that is political - British politics in general, and the press in particular, are very concerned with looking 'sensible' and 'adult', which makes them push for things like austerity, privatization, and debt management at higher levels/at less provocation than the other countries listed.
... is my vague impression, as someone with little direct experience in the topic.
Debt has to be rolled over though. So as a bond buyer, if you expect the government to inflate the currency, you’re going to demand higher interest to compensate. Inflation solves some debtors’ problems, but maybe not the government’s? And indeed the UK government is taking so much flak about the “cost of living crisis”, it’s hard to believe they have any incentive to let inflation run high.
As far as I understand it, they aren't required to hold government bonds, but instead that government bonds are considered extra-safe so therefore can hold less capital than if they invested elsewhere (which is what led to some recent bank problems).
Not saying they aren't advantaged, but advantaged is different than required.
(Unless I'm missing something, in which case I'd appreciate the correction.)
If the incentive gradients are clear enough, fiduciary duty to stockholders means advantaged IS required.
Fair point, but remember that famous remark “if I die I want to come back as the bond market, you can intimidate everybody?” Legal requirements only work for local financial institutions, which is a lot if you’re the US, less if you’re the UK, less still for say Turkey.
> as a bond buyer, if you expect the government to inflate the currency, you’re going to demand higher interest to compensate
You'd think so, wouldn't you? But that's not what we've seen for the past 30 years. As debt gets worse, rates consistently go lower, lower, lower. (Recent corrections to deal with an inflation spike that got a little bit *too* successful notwithstanding. Look for policy makers to start driving rates back down to 0 as soon as it's politically feasible.)
But inflation and inflation expectations were very low until the past couple of years, so that doesn’t contradict my thesis.
The selected comments were a decent overview from a statistical perspective, but they all missed a key feature: the tapering off of North Sea energy - both oil and natural gas.
A major reason for the "recovery" of Thatcher's era was the development of the North Sea fields; the decline of same is intuitively going to cause reversion to pre-Thatcher mean.
The mechanism is very simple: the UK is a net trade deficit nation without North Sea energy exports: https://www.macrotrends.net/countries/GBR/united-kingdom/trade-balance-deficit
Note how trade balance was fairly even until 1995 when it fell off a cliff.
The UK's need to import food and pretty much everything, was offset by energy exports until the North Sea fields started tapering off. Unlike all the big EU nations, the UK imports literally half of its food - 45%+ vs. high single digits to teens for France, Germany, Netherlands etc.
Food is not something you can work around; but high percentages of food imports are ok if you have energy exports to offset but the North Sea declines flipped the equation - the UK now imports energy in the teens percentage on top of the 45%+ food imports.
Net net: the UK is f'd - especially since they are so keen to piss off the largest nearby source of cheap energy (Russia) who also incidentally is the largest wheat and fertilizer exporter in the world.
Nice comment. Does the UK have other sources of fossil fuels (a la US’s shale boom) or prospects in green energy sources to offset this energy trade deficit?
Absolutely *enormous* offshore wind in the pipeline (scroll down to the chart half-way down this page): https://www.energymonitor.ai/sectors/power/weekly-data-the-number-of-countries-generating-offshore-wind-power-is-set-to-double/
However there are big constraints in terms of internal transmission capacity that currently aren't anywhere near being solved due to the terrible planning model & worse central governance in the UK, without which the benefits of this will not be properly realised. It's absolutely possible for the UK to become a net energy exporter but it will require some actual political will & ability, which has been in short supply for some time.
As a matter of fact there's no wind at all in the pipeline; it's just oil and gas.
A flat contradiction with no supporting argument doesn't add much to the conversation, especially when the previous comment links a source and you don't.
I think this may have been a joke - as power is normally transmitted by cable rather than pipes. Let's assume it was, anyway :p
Ah yeah that would make sense.
Unfortunately the UK grid has inadequate capacity to transport electricity from wind farms and pumped hydro storage in Scotland to South England where most of the demand lies.
Planning is really not the British government’s forte, like when they allowed British Gas to shut down 40% of its storage capacity in 2017 because the market would provide.
I, er... may not have been being absolutely 100% serious..
(Though I did really enjoy imagining some sort of Solarpunk infrastructure that carries wind in a pipeline to a wind refinery, instead of having the huge enormous Martian-tripod-looking-things sticking up out of the sea...)
People do keep pushing the idea of using renewables to produce green hydrogen and shipping that via pipeline rather than shipping the electricity directly. It's easier to buffer that way, but I'll believe it when I see it.
I can't tell if this is arguing a point or just a joke about the word pipeline
UK has wind but wind is a terrible power source. It is intermittent and therefore requires 100% backup; it is also low capacity factor meaning 2 units of wind generation are needed to replace 1 unit of fossil fuel, even on an annual average basis. The impact of this is too much wind at frequent periods when that power is not wanted as well as too little wind on hour, day, week and even multi-month time scales.
This link, for example, shows the growing mountain of cash being spent to get rid of too much wind electricity per year. It has averaged well over 200 million GBP per year for the past 5 years: https://www.ref.org.uk/constraints/index.php?tab=yr
Note I am not saying that there is *no* role for wind generation; what I am saying is that the notion of wind electricity generation being a panacea or path to Net Zero is a fantasy.
Yeah, we're still waiting on an economically viable grid-scale storage solution to handle the intermittentcy problem. :/
Yep, and other than pumped hydro - it is very possible that there won't ever be one.
The issues are cost and loss.
For lithium or other batteries - there are simply not enough minerals to ever achieve the scale necessary unless 10x or greater energy density improvements occur. But 10x or more energy density improvements will yield densities of 6x that of gunpowder. Just how safe will gigawatt-hour scale battery installs with 6x gunpowder energy density be?
For potential energy/gravity, compressed air, heat, etc etc - the problem is both scale and loss. US electricity consumption is around the 4 trillion kWh = 4 billion MWh range; this means storing 1 day of US electricity consumption would require 11 million MWh of storage.
To put this in perspective - that means 1 day of US electricity consumption storage is equal to the amount of electricity used by all of New York City in a year, multiplied by roughly 1000.
How much rock would have to be lifted to equal that amount of electricity? Air compressed? Salts or whatever heated up and then the heat recovered?
This seems to me to be a scale problem - not a technology problem per se.
> To put this in perspective - that means 1 day of US electricity consumption storage is equal to the amount of electricity used by all of New York City in a year, multiplied by roughly 1000.
You miscalculated something. NYC is ~2.5% of the US population. So 1 day of US electricity usage is ~40 days of NYC electricity usage (or somewhat more or less, if New Yorkers' energy usage is different from the US average), not 365000 days.
Scotland has tremendous pumped hydro potential like the Coire Glas project that by itself can store 4 hours of the entire UK’s peak demand.
Sometimes I wonder if by its decisions like not building adequate grid interchange between Scotland and England the UK government is demonstrating a belief Scottish independence is a foregone conclusion,.
> For lithium or other batteries - there are simply not enough minerals to ever achieve the scale necessary unless 10x or greater energy density improvements occur.
I don't think that's really the case. Per Natural Resources Canada (https://natural-resources.canada.ca/our-natural-resources/minerals-mining/minerals-metals-facts/lithium-facts/24009), there are about 90 million metric tons of proven Lithium reserves worldwide.
Per Wikipedia (https://en.wikipedia.org/wiki/Lithium_iron_phosphate_battery), a LiFePO4 battery has about 100Wh/kg of energy density, and per a random SDS (https://dakotalithium.com/wp-content/uploads/2019/01/LiFePO4-Safety-Data-Sheet-Lithium-Iron-Phosphate-Batteries.pdf) one LiFePO4 battery was 40% LiFePO4 by weight, of which about 5% would be elemental Lithium (Li / (Li + Fe + P + 4*O), by atomic weights).
That implies that LiFePO4 chemistry would give about 2kWh/kgLi. If we devote 10% of the world's proven Lithium reserves to grid-storage batteries, that implies that we would be able to construct battery systems capable of holding (90e6 tons x 1e3 kg/ton x 0.1 (usage ratio) x 2000 wH/kg = ) 18TWh of energy.
In the meantime, Wikipedia notes (https://en.wikipedia.org/wiki/Electric_energy_consumption) that the global electric energy consumption of 2022 was about 24,400 TWh, or 66.8 TWh/day.
Thus, using 10% of the world's proven Lithium reserves on current Lithium battery technology would deliver energy storage equivalent to about 6.5 hours of *the world's electrical energy consumption*.
On top of this, we can also consider other points along the weight/capacity tradeoff curve such as flow batteries, which are heavy and immobile, thus not competing with batteries for portable/transport use.
> This seems to me to be a scale problem - not a technology problem per se.
I think it's more of a policy problem. Grid storage makes financial sense when wholesale energy prices show wide swings in short intervals (minutes for battery smoothing to weeks for pumped hydro) over a long period (years) to justify construction costs.
This doesn't happen with conventional (fossil/nuclear/hydro) electricity, so it depends on large-scale renewable adoption that can make peak-production energy nearly free. However, people are justifiably leery of introducing that kind of price volatility, so there's no direct profit incentive to build out large-scale battery storage.
There are lots of alternatives to pumped hydro. Unfortunately they tend to be either rather site specific or costly. Even weights on a string can be made to work, if you put enough design effort into it. But building it won't be cheap, and there are likely to be lots of maintenance costs.
OTOH, check out "flow batteries", which sort of combine pumped hydro with a battery, and the battery stores the power. But they're only useful at an industrial scale. I think this means they are usually ignored, but I'm not certain.
Pumped hydro isn't plausible either. The amount of water you have to pump up is just too much.
Wind doesn't require 100% backup if you distribute it out broadly enough (unlike solar, which literally doesn't work at night), but it's definitely intermittent and not reliable as baseload power.
The total value of electricity produced by wind in the UK is ~4.8 billion GBP. 200 million spent in power balancing is about 1/24th of that. As such, wind is a huge net positive.
Wrong.
I posted 2 different links where wind shortages across all of Europe lasted for an entire year.
The notion that wide distribution of wind will result in more even production is true in a relative sense but not in an absolute sense.
As for UK: the amount of curtailment keeps growing and UK electricity prices keep increasing. How exactly is this a huge net positive?
Clearly the assertions of "cheap" wind electricity are fundamentally flawed.
There was not zero wind across the entire continent, as you are now asserting.
Wind, if broadly distributed, will produce at least some energy. But it's far from 100%. You don't need 100% backup, but you do need sufficient backup to deal with a very significant drop-off in wind to the minimum level (99.999th percentile wind).
WRT: Curtailment - what is the price of wind electricity with curtailment in mind? This is the most important question. If you are producing electricity below the cost of other power sources, then it's still worth building wind power, even if you end up curtailing it. If you're not, then it isn't.
They're still building it precisely because the threshold at which wind power ceases to be economical has not been reached yet.
Green energy sources are, sadly, primarily a net loss in terms of trade - because the vast majority of wind and solar PV is manufactured in China. The sad reality is that there is a direct link between unusually increasing electricity prices and wind/solar PV penetration.
As for other sources: there is supposed to be at least some fracking fossil fuels available (principally natural gas) but it was prohibited from being exploited, by law, until last year.
Here is an LSE report saying there is between 90 and 330 bcm in shale fracked natural gas potential: https://www.lse.ac.uk/granthaminstitute/explainers/what-potential-reserves-of-shale-gas-are-there-in-the-uk/
But this is not as much as it appears. EQT, the largest US frackers - controls 23,500 bcm in natural gas vs. US annual consumption of 827 bcm and UK annual consumption of 72 bcm.
The UK has onshore reserves it could frack in the same way the US has done. Green campaigners have prevented that from happening, so the UK imports instead.
I think the same is also true of the global finance boom of the 1990s and 2000s, which London was one of the biggest exemplars of.
The debasement of currency/financialization of economies certainly occurred in the UK, but again that's somewhat orthogonal to the real world economy's needs.
I say somewhat because short term imbalances can be papered over, but long term imbalances cannot.
This comment seems to presume that being a net exporter is a good thing, and a net importer is a bad thing, but my understanding of the mainstream economics position on this is that it doesn't matter
It depends on what is being exported or imported.
Importing food means you cannot feed yourself otherwise.
The mainstream junk economics position is that its all currency, but reality and real world economics means a heavy dependence on food imports is a serious economic vulnerability and weakness for any nation.
Imports of iPhones and Louis Vuitton can be foregone in bad times, but food cannot.
I agree but your statement is irrelevant - unless you are saying that the 45% of food consumed in the UK that is imported by the UK is all bananas.
I think he means to point to the more general claim that imported food is substitutable by domestic food production for the UK without losing meaningfully much in national welfare or being threatened in its food security, especially given time. Not sure, where the 45% figure comes from (the discussion above is too long for me). Is that 45% is monetary value of food consumed or is that of consumed calories? The latter would be a lot more concerning. Anyway, the claim sounds plausible to me, but I'd defer to someone with stronger opinions on potatoes, herrings and bananas :)
Here's one corroboration for the number:
https://www.trade.gov/country-commercial-guides/united-kingdom-agricultural-sectors
"The UK imports around 46 percent of the total food it consumes and is reliant on both imports and its agricultural sector to feed its population and drive economic growth. "
That seems pretty conclusive that the food being imported is not luxury but rather core requirement.
This is the clearest Mott-and-Bailey argument I have ever had personally directed at me, so well done.
Whether or not you are creating a serious point of failure for yourself in some hypothetical future is a _completely_ different question than whether or not an import/export surplus/deficit has negative impacts in day-to-day operations. Your comment made it very clear that you think that having an export deficit is, in and of itself, with no future issue needed, a negative economic situation and is in fact the _cause_ of the slowdown). You are now claiming that, depending on what it is you are importing, if things go a specific way in the future, that can be different levels of bad. These two claims are completely unrelated to each other.
It might be true that if the UK is importing lots of food, that could create a crises under certain changes in international politics or something. That has no bearing whatsoever on their _current_ economic climate.
Interesting, you are attempting to say what?
I noted that the UK has an overall trade deficit and furthermore that this trade deficit is significantly due to its need to import nearly half of its food conception.
In what universe is this not a risk?
Note I have never said that this would result in Mad Max; I thought it was intuitively obvious that such a massive level of imports of critical food would expose the UK economy to any number of risks ranging from the ongoing trade deficits and their effects on currency strength, to cash flow risks from increases in food prices/food supply decreases, to geopolitical vulnerability due to major food exporters changing policies or enacting economic warfare.
Clearly I did need to spell this out.
As for your "hypothetical future" - the situation in the UK speaks for itself.
This is not a nation moving from triumph to triumph - and this situation existed long before the spikes in energy and food due to the Ukraine situation.
Clearly there is some structural factor at work. Nor can this be ascribed to Brexit either since the situation also existed prior to Brexit.
So whatever your apparent desire to assign my statements of fact to "Mott and Bailey" - I never made a single policy recommendation. All I wrote are simple facts.
Perhaps you can address the facts as opposed to attempt to assign motives or theories.
How exactly does having structural trade deficits plus dependence on massive food imports, not a structural issue for the UK?
In case anyone else reading this exchange is curious:
A motte and Bailey argument is where one makes an initially expansive claim (the bailey), but then, when challenged, retreats to a much more limited (and defensible) version of the claim (the motte).
In this case, the bailey is "trade deficits cause economic decline".
>A major reason for the "recovery" of Thatcher's era was the development of the North Sea fields; the decline of same is intuitively going to cause reversion to pre-Thatcher mean.
The mechanism is very simple: the UK is a net trade deficit nation without North Sea energy exports: https://www.macrotrends.net/countries/GBR/united-kingdom/trade-balance-deficit
The motte is "not producing certain kinds of goods could, under the right circumstances, create a crisis".
The second one is definitely true, but has _nothing to do_ with the first one, other than they both involve trade deficits. The economic consensus is that a trade deficit, of _any kind_ does not, under normal trading conditions (that last part is important, please don't ignore it), cause economic decline and is not a problem at all. Yes, it _could_ absolutely become a problem if you import all your food and then your import partners decide to cut you off (or some similar such disruption in trade occurs). But that has no connection to whether you will have an economic decline prior to the point where the disruption occurs. Whether or not the UK is in a good long term strategic trading position is unrelated to the current discussion of "have they had economic decline relative to peers in the past several years". You have not once tried to defend the claim that a trade deficit could have caused that decline. Instead you are focusing on the much more limited (and unrelated claim) about potential future issues.
While you are generally correct in what you're saying, a trade deficit is not a problem in and of itself, but it is an important signal of your productivity. You are producing fewer things (or things of less value) that others want, and others are producing more things (or more valuable things) that you want. You are financing this deficit by taking on debt. If you invest wisely, or grow your productivity fast, this is no problem! But if not, a trade deficit can signal very big problems.
So to summarize your point:
you state that " The economic consensus is that a trade deficit, of _any kind_ does not, under normal trading conditions (that last part is important, please don't ignore it), cause economic decline and is not a problem at all."
This is utterly wrong both in describing theory and in practice.
Let's look at Sri Lanka as one example. This is a nation with a massive trade deficit.
Are you seriously going to argue that this trade deficit - which is significantly due to imports of fertilizer for their tea plantations - was not a problem for that economy even before its ill-fated attempt to "go green" and stop importing fertilizer?
There is only one nation which can ignore trade deficits because it owns the international trade currency - the USD.
Any other nation with a trade deficit must always buy US dollars in order to fund its net deficit - this constitutes am ongoing negative impact on the economy exactly as if said nation had a large US dollar debt.
If the economy in question is sufficiently wealthy via say, foreign net investments like Japan, a trade deficit can be tolerated but it is disingenuous in the extreme to say that "a trade deficit, of _any kind_ does not, under normal trading conditions (that last part is important, please don't ignore it), cause economic decline and is not a problem at all." if you are not the US.
So thanks again for trying to employ argument tactics - but your core argument is simply flawed.
Had you responded that the trade deficit - by itself - might not be the cause of UK's decline because of some other offsetting factor like net foreign investment income, that would be at least arguable but relying on a "one size fits all" economic dogma sentence is just sad.
As the other person said, whether or not it becomes a point of failure in the future has no bearing on whether it is a source of slow down at present. And in fact, if Britain tried to reduce its dependence on food imports, it would be much more likely to experience a further slowdown, given that it would be trying to import substitute and put resources into a very low productivity activity (agriculture)
The point of failure is not the only source of problems; the spend itself is a problem especially since the UK has an overall trade deficit.
Even mainstream economics notes that trade deficits for nations not owning the international reserve currency constitute a burden on the economy of the deficit nation.
Not to mention most of that windfall was extracted from Scotland and spent on London and South England, thus fueling resentment and an independence movement there.
Hasn't that been going on for about 600 years now, though?
Nah, that's fantasy politics. SNP hardly care about oil, Scottish independence movement is first and foremost about ideology. They're more left wing than the rest of the UK and wish they could have a more left wing state, unconstrained by what the rest of the country wants. To the extent they talk about oil it's "if only we'd kept it all for ourselves we could have had a socialist utopia" which is (a) irrelevant, as it's not the 1980s anymore and (b) stupid because the oil money in the 80s was spent bailing the UK out of exactly that kind of socialist meltdown.
Nowadays oil money is irrelevant. Tax income from oil&gas is very volatile, swinging from only £300M in 2020 to more like £2.6B in 2021/2022 but is dwarfed by the English subsidy to Scotland which is more like £41B.
But Scottish politics has long been deeply unserious about anything economic.
If I understand correctly (which I may not), the UK is especially trapped into high energy prices in this circumstance because of a policy that requires alternative energy sources to charge the same amount as natural gas providers, meaning that when gas gets more expensive so does every other energy source.
I can't speak to that.
But in general, one of the most egregious economic distortions introduced by legislation prejudicing solar PV and wind over other sources is the "first to sell".
First to sell means if solar PV or wind is available, the grid must buy it to the exclusion of other sources i.e. fossil fuel or nuclear.
This is ridiculous because it is literally rewarding unreliable electricity generators at the expense of the reliable ones. For example: if there is an oversupply of electricity situation - the solar PV or wind gets bought by the grid but the "excess" supply of electricity, which is now literally negative value, must be absorbed by say nuclear power plants that can't turn off/of rapidly. Or in other words: being reliable is penalized.
It is certainly possible that the UK has passed laws mandating that solar PV/wind get the best price available on the market - that would be another form of massive economic dislocation since free markets supposedly function by each producer selling at their own cost + margin - as opposed to selling at the worst producer's cost + margin.
Y'know, there's an argument to be made that Russia pissed off them, and not the other way around.
If these peoples and/or governments want to engage in ultimo ratio regum with Russia over these issues - they have a perfect situation to do so.
We are long past the point of arguing with words and into the realm of artillery fire settling the discussion.
Are these entities willing to fully mobilize and duke it out? Russia clearly is.
Why spend our own citizens on this when we can send weapons to Ukraine to kill Russians for us?
The problem is that the negative outcomes isn't just Ukrainians dying.
Massive inflation in the West, dedollarization, the destruction of US and EU military reputation, the pushing together of Russia and China (and the ROW) ever closer - these are all huge negative consequences.
Time to nip this in the bud.
Inflation was not caused by the Ukraine war, it was caused by COVID disruptions to supply chains and governments handing out massive amounts of money, as well as irresponsible tax cuts. Inflation in the US peaked in mid 2022 and has been declining since; and is now at 2021 levels. The inflation increase began more than a year prior to the 2022 invasion of Ukraine.
This is a Russian propaganda talking point which is trivially dismissed within a minute of looking at the data.
Dedollarization is not really meaningful and is going to face the exact same problems it always has - the reason why people use the USD is not because they love the US, it's because their own countries' ability to manage their economies is garbage.
The US and EU military reputation has gotten stronger, not weakened; indeed, the country that has looked extremely weak as a result of this war is Russia, which now looks like a third world state. This is not really news to those who have been paying attention, but Russia at this point basically has nothing but nuclear weapons - its conventional military has been exposed as being quite poor. Indeed, this has been known for some time now, but it has been made clear to everyone that Russia is very weak and that NATO could roll over the country if they wanted to, and the only thing that is stopping them from doing so is Russia's nukes - which there are doubts about now, too, given the decrepit and corrupt state of the rest of their military.
The axis states of Russia and PRC are together for the same reason as Germany and Japan during WWII - they are weak and vulnerable while their enemies are all allied. The reality is that they are in even worse straits than the WWII Axis, though, because China is heavily dependent on the West economically and Russia is extremely poor. This puts them in a very unfavorable position militarily where angering the Allies too much will result in them being summarily destroyed.
The war in Ukraine has resulted in further expansion of NATO, and increased interest in East Asia of creating more NATO-like structures, which China is freaking out about.
The Russian Empire and PRC are legacy states that should have been ended after WWII.
China is now much more leery of invading Taiwan, because the West ended up showing it has teeth, while Russia is now setting its population and economy on fire in the long term to try and seize land in Ukraine.
Appeasing dictators does not work. Never has, never will.
The present situation in Ukraine has told China that its own expansionist plans will face resistance.
Is this the standard "we should put all our money into nuclear, the only reliable non-fossil fuel energy source" argument?
No, this is a "reliability, affordability, carbon neutrality" argument.
Every form of electricity generation has its good and bad points, or in other words, there are tradeoffs no matter what you decide to do as a society.
If the West desires to achieve carbon neutrality via present and near future intermittent power generation methods, the results will certainly be unreliability and likely will be unaffordability.
For example: for all the LCOE nonsense - the reality is that there is a very clear correlation between high electricity prices and increasing intermittent generation.
The 2 exceptions to this, in the US, have been Hawaii - because they still literally burn oil to generate electricity due to the enormous US Navy base there, and Texas because of its abundant fracked natural gas. Texas just made huge strides (sarc) to join the alternative energy curve when natural gas prices spiked last year, thus demonstrating that their relatively low electricity price increases were not because of their huge solar PV and wind installs, but because of fracking dropping natural gas prices to historic lows.
In addition - it is increasingly obvious that there are severe mineral constraints to alternative energy adoption at scale. This is most pronounced in the electric vehicle side but exists for all sectors even outside the alternative energy space.
The mining industry is coming to the awareness that EVs and storage of solar PV and wind are the greatest boons to demand for mined metals and minerals since pretty much the advent of the industrial age.
I just went through an exercise looking at how much lead would be required to store 1% of the world's electricity consumption in lead acid batteries - it was something like 4.3 million tons of lead vs. 4.9 million tons of annual world production of lead. LOL.
The same person then put forward an iron/iron rust solution that required 1/2 to 1/3 acre to store 1 MWh of electricity; again doing the math, it comes out to tens of millions of acres of this "revolutionary concept" to store 1% of US electricity consumption and god knows how many millions of tons of iron.
The point of this is to understand the true scale of what is actually necessary to achieve whatever stated goals are.
Magical thinking based on ignorance is not going to get the job done.
Ah, it's the "let's just ignore the negative consequences of climate change" argument.
No, it is a "solar PV and wind as a magical fix for climate and replacement for existing power generation is a load of bullshit" argument.
Ultimately every society should make its own decisions - if the decision is to devolve to 3rd world power reliability with 1st world pricing, then so be it.
So what in your view should society do?
Again, it depends on what the goals are.
If the goal is rapid de-carbonization - nuclear is the only way that is realistically going to provide the reliable stationary in the quantities needed in the next 10 years. This means building multiple nuclear power plants per month, worldwide, for most of those 10 years.
If de-carbonization is not so urgent - put real money with real world requirements into research and development of technologies that can do what nuclear can do now but without the radiation.
If affordability is the issue, put in true progressive pricing along the lines of: using 10x more power than regional average per capita will cost 10^2 = 100 times the cost. Combine this with mandates to force greater density.
Of course, in reality what we will get is a rogue's gallery of special interests and posturing on all sides, resulting in none of the above.
Russia has been a significant drain on the Western economy due to its military aggression for a long time (since they were one of the countries that started WWII), so destroying it is a pretty big net long-term positive.
LOL.
Russia is such a drain on the Western economy that cutoff of Russian natural gas has sent all of Europe into a de-industrialization spiral.
I wonder how much of it the discussion is that people are actually paying attention to our economics more after the Liz Truss fiasco, and noticing a lot of Brits are very unhappy when it comes yo the economy and their incomes (eg huge strikes in healthcare and other sectors).
Potentially partly fueled by long periods of austerity and the feeling that it didn't actually fix anything, add on COVID and high inflation and people finally want stuff back but huge rise in debt-to-GDP and Liz Truss mean it's very difficult for the government to fix anything?
The tragedy of Liz Truss is that she was more or less correct in her diagnosis of the situation. She was also correct when she recently criticised the media for not understanding her goals. There is too much superficiality in the media and government. Unfortunately Truss totally failed at preparing a plan and buggered us twice
The only data point I have on this topic is that engineers in the UK make a lot less than equivalent engineers in the US. To the extent that the US economic and productivity growth is in some way attributable to the tech sector, that matters. Fewer talented people would be attracted to work in the technology sector, fewer smart people from around the former Empire would be tempted to move to the UK to work in technology, and the smartest folks in the UK will be tempted to move to the US. (I'm assuming that a UK > US immigration path is relatively easy, and I definitely meet a lot of people from the UK in Silicon Valley.)
I don't know if this is material or anecdotal, though.
A UK>US immigration path is not easy unless you're exceptional or wealthy or have a company willing to sponsor you. SV types will have at least one of those 3 (probably 2)
Depends on the job. I know several employees of multinationals who have managed it, because their employer successfully argued to USCIS that they had essential organisational knowledge, and thus the choice was either they do the job from London paying UK taxes, or from the US paying US taxes: ie they would not be taking a job away from an American.
Basically, you can be rich, you can get an H1 visa (employment sponsor, H1A is globally exceptional, H1B is when there aren't enough Americans available with skills), you can marry or be related to an American, you can be a student at an American university, or you can be internally transferred within a multinational. There are a few special cases like actors and sports people as well.
I’d say it’s pretty simple, though it’s most often very time-consuming and expensive.
You go to a US university on an F-1 visa, typically paying full sticker price. Then you work for up to 3 years (if you studied STEM) in the US with the F-1 OPT program. During these 3 years, your employer can sponsor you for a green card right away (if you’re not originally from India or China) and that’s it. You don’t even have to go through the H-1B lottery if you were born in the UK.
If you get into a US PhD program, it’s much cheaper. Those are typically fully-funded, so you don’t have to pay a lot of money to get the F-1 visa. Then, after you earn a degree (either a PhD or a master’s if you decide to leave early) you can get green card sponsorship the same way I described in my previous paragraph.
A country can only increase well-being if its productivity (output per worker) grows. As pointed out in the article, you can get more total output by simply adding more workers, but without increases in productivity, average output per worker won't change, so you don't get growth in well-being. I believe the lack of productivity growth -- lack of innovation -- in the UK is the problem.
Addressing your question, Mike, the need for productivity growth suggests that engineers (who presumably innovate by creating new technologies that increase output per worker) should be getting paid high salaries. However, the fact that they're not getting paid those higher wages suggests to me that the UK lacks the complementary infrastructure needed to enable new innovations to actually be adopted and used by (i.e., create value for) the economy. Since the US has the complementary infrastructure, new innovations by engineers in the US can be plugged into the system, so-to-speak, and create value, which enables them to command higher wages than their counterparts in the UK.
Allied to that, there are other options for smart mathematically inclined graduates, like the city, which pay pretty well. So why bother with a low mid income engineering job.
The actual issue here is that US companies hire in the UK and pay good wages. Same for the rest of Europe. Not quite as high as SV but still extremely good. For example, I worked in a UK based role for a long time earning upper end of Silicon Valley level wages.
The result of this is:
1. US firms hire all the best UK talent.
2. The value they create is then generated in the US (extracted via arbitary-sized royalty payments), and thus doesn't have any economic effect on the UK, beyond the relatively trivial impact of higher spending by those engineers.
Even when Brits quit and create startups, to raise VC they have to go to US firms who then often require them to set up an HQ in the Valley. I've encountered quite a few firms that were notionally "American" in which almost all engineering was being done in the UK, but with near-US level wages.
This is an inevitable consequence of software companies not being exposed to protectionist measures in any way. Why would anyone NOT team up with the Americans in such a scenario? National pride?
'country can only increase well-being if its productivity (output per worker) grows. As pointed out in the article, you can get more total output by simply adding more workers, but without increases in productivity, average output per worker won't change, so you don't get growth in well-being.'
While you're technically right, I think the economic dynamics can be somewhat different.
Increases in total output can enable productivity growth by increasing the aggregate demand. Imagine an area with one person producing 100 units, and the same area with 100 people producing 100 units. Yes the former and the latter are mathematically equivalent, but I would expect the latter to do better over time.
While I agree there are very possibly explanations other than mine, could you please explain why you would expect the latter to do better over time?
Development economists often point to market size as one of the factors that enables innovation and productivity growth. This is because certain activities only make economic sense if there is a certain scale available for them.
If you have a 100 people producing a 100 units, that enables 1 of them to think, hey, maybe if I start selling widgets to the 99 guys that are producing units, that could be a thing. The widget producing depends on the market that the 99 unit producers represent. In innovating to set up widget production, the 100th widget guy will raise overall productivity and improve quality of life.
So you will again be technically correct - quality of life only grew when productivity grew, but like I said, I think the dynamics followed to get there probably have a role for total output.
You make a great point. One could absolutely distinguish Smithian growth from Schumpeterian growth. Smithian growth is achieved by organizing markets more efficiently, namely using specialization and gains from trade, as you point out. Schumpeterian growth comes from "creative destruction," that is, innovation, which increases productivity. Both play a role in helping societies develop.
I would like a nice thick description of these complements to help me understand.
I'm in the cannabis industry. Cannabis is classified as a Schedule I drug, which means the federal government considers it to be an illegal substance. Companies that are active in the industry are thus potentially subject to sanctions by the federal government. As a result, banks will not provide services to cannabis companies, because their entire operations -- cannabis and non-cannabis related -- may be shut down by the government. Without banking services, businesses are generally forced to conduct all operation in cash (receive payments, pay bills, pay taxes, etc.), which is difficult and requires much added security, which is very costly. Likewise, cannabis companies cannot use traditional advertising/marketing venues, including Google, Facebook, Instagram, etc., or traditional delivery services, including the USPS, UPS, or FedEx. Without access to banking, advertising services, or traditional delivery services, it's very difficult and/or costly to reach customers and scale operations. This hampers sales and profitability.
Please let me know if that answers your question, John.
I'm still a little confused. You provide an example of a specific government policy preventing access to existing complements. What complements might not exist in the British context which forestall innovation? It can't really be access to banking, can't it?
If you look at Israel, it has had pretty stagnant productivity growth over the last 20 years. Yet their nominal GDP per capita has surged. I think the real problem here is that PPP (which is used in "real productivity" measurements) is flawed.
That isn't really true. Well being can be improved by many things that bring the mean income closer to the median income (though certainly not by all such things). If productivity/worker increases, but all the benefit goes to a third party (i.e. neither reinvestment nor pay to the worker) then well-being is not clearly going to increase, and is likely to decline.
You are entirely correct. Tech salaries are half the US, taxes are 50% higher yet housing in London is even more insanely expensive than the Bay Area.
When I relocated from SF to London 4 years ago my Israeli colleagues made fun of how low wages there are, correctly it turns out.
Just as most Americans don’t realize how inefficient and underperforming their health care system is, the British don’t realize how bad they have it, even compared to other Europeans.
Tech salaries aren't half the "US". They might be half the Bay Area but this says more about the incredible levels of wage inflation in that very tiny area of one state than it says about the UK. I've had plenty of British colleagues that earned salaries pretty normal for the non-Bay Area US tech sector.
Half actually sounds about right if you ignore the Bay Area (where the differential is much bigger). Average US SWE comp is maybe 120k USD/year, and 50k GBP (~65k USD)/year in the UK. Of course you can do much better in both countries, but if we're talking about averages...
Salaries may be lower in UK but total comp is about the same or even higher in the UK when you factor in the cost of taxes and regulations born by the employer.
what does this mean?
When a firm employees someone it costs more than. Just salary in the US it includes things like the employers portion of fica, unemployment insurance premiums, office space and computers for the employee, health insurance contributions and some amount of money that has to be put aside or spent on insurance for the risk of employees suing for wrongful termination or sexual harasment. The cost of an employee in the USA is usually about double their salary for white collar knowledge workers.
In the UK the factors that make up total compensation are likely so much greater than in the US that employees in the UK cost a firm more than an employee in the US depspite the UK employee having a lower salary.
Okay but (1) is this actually true or just speculation and (2) why should j random worker care about that?
Note that if it were true then it would seem to imply that uk productivity is higher than us (total comp is upper bounded by productivity if the employer wants to stay in business), but this contradicts data which says uk productivity is significantly lower than us
I happen to agree with your point (1) and your note, but I nevertheless can't help but remember the line, "I don't think Sir Humphrey understands economics, Prime Minister. He did read classics, you know"...
(As for 2, workers probably do care about how much the company has to spend on their living conditions, how much their legal protection is worth, etc. They likely trade off against salary to some extent - for example "danger pay" and "sea pay", where you get a higher salary to compensate for fewer workplace protections or comforts, respectively)
If the claim is that UK workplaces are so much nicer that it more than compensates for a 50% lower salary then that would need some serious justification, and seems highly unlikely to be true. It's not like American offices are radioactive waste dumps. American commutes are also shorter than British ones.
> American commutes are also shorter than British ones.
Wait, what? I thought Americans all spent hours stuck on the freeway every morning listening to talk radio and/or podcasts.
You could be right but, on the other hand, you could be wrong. We would need to see the workings out. The cost to the employer of hiring may well be cheaper in the U.K., as health is part of general taxes and it’s a less litigious country. I’ll try find the figures.
Employee oncosts in the UK from a quick google are around 33%. This is not particularly different to US ones (I remember these being around 30% for a US company I used to work for). This doesn't include things like overhead allocations on office space/power bills/liability insurance, but as someone who has managed a few business P&LS, I doubt those would make much of a difference. Insurance is probably the biggest of the 3 and compared to direct employee compensation costs it might make up a couple of %.
Is this true even at the upper end? I would be skeptical that non-salary benefits and other costs could cover the huge gap in McKinsey salary between NYC and London, though I could be wrong.
It may well be true at the lower end. "A lower ceiling, but a higher floor" would fit with the stereotypical perspective on Western European economies vs. the USA: better total compensation in Europe on the low end = less risk of true poverty in (Western) Europe, whereas the US offers less of a safety net on the low end but the opportunity for much greater wealth for the successful (and more total wealth overall). This is a stereotype and I welcome the addition of nuance.
you can google `income by quintiles' and it looks like the bottom quintile in Britain is at parity with the bottom quintile in the US, whereas from the 20th percentile up the US is ahead (in income), with the gap growing as you climb up the income distribution.
More fine grained data is not easy to find on a quick google. I could believe that e.g. the 5th percentile might be doing better in Britain, but now we're talking a pretty small fraction of the population.
I'm not sure that's always the case. I'm a software engineering manager at a company with both a US and UK presence. I'm strongly incentivized to recruit developers and analysts from the UK wherever possible, because salaries are so much lower for equivalent levels of experience.
To be clear, is that just raw salaries, or "total compensation" (including all the costs of employment, such as taxes)? If it's only the former, you might actually be in a position to find out what the latter is!
Not the previous poster but I have the same experience. I only have viz into the salaries (+bonus and stock), but I assume my finance overlords wouldn't encourage me to do it if it lost them money.
I have a second supporting anecdote: My team was able to hire a UK based senior level engineer for the salary that would be for an early mid-level US engineer. Something else i have heard about our UK based employees is that they have to give 3 months of notice before leaving a job (could be wrong?) and when we laid off a UK based employee we had to give them 3 months of notice (opposed to 0 for US based). Those two things increase costs but the salaries are lower, so there is a trade off.
Your graphs don't look particularly good for Britain, but they also don't look too good for France, Italy etc.
England is a European country, and Europe as a whole is just not doing so hot. Does there have to be a UK specific explanation? If you're Leave, then Brexit should have rescued UK from EU stagnation, and if you're Remain then the EU is doing well and UK should be trying to match it. I don't think either are true.
yeah this
I have seen some small amount of data showing things going well for lots of eastern european countries like Poland, Slovenia, Baltic states. Could be due to starting from a smaller base. But it does seem like UK is doing worse than they "could" be relative to Frence, Germany, Spain, etc.
No, if you're Leave the consensus position is that very little has been done with the new powers and the UK is in effect still "in" the EU from a policy perspective. Due to years of procrastination and delay divergence was only possible starting from 2020 and the government immediately lost the ability to do anything except think about COVID for a couple of years. Then it went through leadership turmoil, increased the number of immigrants massively despite promising it would use the new powers to do the opposite, and has wasted a lot of time trying to avoid leaving the ECHR (a non EU European institution that still rules the UK) because that's the next blocker on the road to doing anything about the illegal migration situation.
In short, Brexit removed a major change blocker but almost nothing has been done with this new power, and the few things have that changed have gone in the opposite direction to what was promised. Immigration hit record highs. It's absurd to ask why UK productivity growth is poor when it has more than half a million NET immigrants a year. Why would anyone ever invest in productivity growth with access to unlimited labor flows of that size?
Curious how few comments mention that UK embarked on record levels of immigration in early 2000s, with predictable consequences for productivity and wages after just a few years.
Is there a good reason why this wouldn't show up in the nominal GDP per capita stats?
I agree this a factor to look into. Has Scott ever read or reviewed any works by Douglas Murray?
It does.
Canada has had higher levels of immigration than the UK, while better productivity and wage growth, so I’m not sure that really explains it.
Confounded by the fact that Canada's economy is tightly coupled to the American economy, which has substantially outperformed Europe over the period in question.
You're right. I should have said "UK embarked on record levels of *uncontrolled low skilled* immigration with predictable consequences for productivity and wages after a few years."
I don't believe this is necessarily a counter example as Canada (and some other countries such as Australia and to a certain extent the US) have huge primary resource industries where the major cap on production is availability of semi skilled labour. Spare Labour in Canada can be absorbed by the oil, mining and lumber industries boosting total output without substantially impacting productivity per capita.
In the UK, there is effectively a fixed demand of unskilled or semi skilled labour, primarily in service roles. As supply increases, the price of this labour decreases. This then further depresses the incentives for companies to invest in productivity increases in this field.
Most of that immigration was from the EU, and was more skilled than the UK average so it should have boosted productivity. The UK is a services economy and productivity is harder to measure or boost.
More skilled yet paid less, really.
Reality is the UK doesn't even know how many people immigrated during those years, let alone how skilled they were. Official population stats are of such low quality the government itself had to relabel them as "experimental", lol. Like China, some analysts try to figure out the true number using water/electricity consumption data. Look at how badly they underestimated how many people would come forward for permanent residency to see just one symptom of this. The fact that the number of unvaccinated people went negative in some age ranges is another.
That would potentially also explain why the situation in Britain feels worse than in the rest of Western Europe, despite Britain officially having similar levels of GDP per capita -- if the GDP calculations are more-or-less right but the population calculations are too low, then real GDP per capita will be (perhaps significantly) lower than the official figures suggest.
I feel like the single most common thing I hear every time someone is describing their geographic area experiencing economic malaise is that housing is too expensive. There are probably a lot of other factors for making objective determinations about an economy, but from a purely feels based framework, it's the single most consistent complaint of the modern era. And I guess it might actually be exploding the Chinese economy as I type this, so that's exciting.
I'm not aware of anywhere that has fixed the problem after it got started. The issue is that people who own land/houses LIKE increasing house prices, and the economy rapidly becomes predicated on high housing prices. Any attempt to lower housing prices would be met by fierce opposition from everyone who owns, as well as banks, pension funds, and anyone else who is invested in real estate. Even many people who don't own would be opposed to it, as owning land is seen as a golden ticket, one that they hope to one day acquire.
I think the US is handling it middlingly. The mass migrations to places willing to build lots of housing demonstrates again the strengths of federalism, even if it doesn't truly solve the issue in the places where housing is ridiculously expensive.
The housing theory of everything (https://worksinprogress.co/issue/the-housing-theory-of-everything) is my favourite single-cause hypothesis.
(I don't actually think it explains *everything*, but it certainly explains *part* of every 'thing.')
If you want to explain *everything* you just need to drill down one level and look at the demand side, rather than the supply.
I am a skeptic. It's the sort of thing that be popular among Brits of a certain age (those just too late to enjoy the boom, but just old enough to start to worry about home affordability), but do housing costs have that commanding role in economic growth, generally? For example, if you thought that low or falling nominal housing prices, the ability to without build with restriction, and manufacturing, and low cost of public transport all had a commanding role in economic growth, we might expect Japan to be the number one performer on economic growth... So a "Housing Theory of Everything" must be a "Housing is very important for economic growth in Britain" theory, and then how do you test that a counterfactual with lower price growth in housing would have seen higher PPP growth? Particularly since we'd probably expect that housing will tend to absorb price reductions elsewhere in the economy (if new supply of housing is just average while price falls are above average elsewhere, landlords and home owners will tend to absorb a higher share of income; so higher house prices can be a product of success in lowering other prices).
Back in 2017, the World Bank's ICP (International Comparison Programme) figures would give you (at nominal rates) an estimate of about 22% of household spending on housing in UK vs 18.5% in France (highest number of housing units:population of the OECD) or 21% in Japan, countries thought to have done particularly well on housing (although nominal prices seem high relative to the USA, where housing is only about 16% of consumer spending). (These are imputed by subtracting their figures for household spending without housing from household spending as a whole; the average for countries above $26k GDP PPP in 2022 is about 17%). You then need all kinds of indirect effects for this to cause changes in the size of the rest of the economy.
But at the same time, it has a large share of the banks' balance sheets and is a large determinant of consumers' willingness to take on debt (people will spend if they feel their house price is going up, reduce if they're worried about negative equity and need to put more in a pension, interest rates are high in savings accounts). Expectations of future prices underwrite the mortgage system and constructors decision to build new housing (unless their costs fall much more quickly or the extent of competition in the marketplace rises much faster than the sale price falls, they will likely build fewer units). So sudden declines in prices might do things to these which are bad for economic growth (house price crashes are fun for people who buy on the dip at the right time for lenders to be positive about future price growth and if they're offering low interest rates - the lucky few from 2010 - but are not fun times for the economy as a whole).
The first comment could easily swap Britain for Canada with minimal other changes. Housing is absolutely destroying the Canadian economy. It's foolish to start a business, it's foolish to try to have a career, or anything - housing growth is so strong anything but just buying housing and waiting is a foolish economic strategy. Many parts of the country have seen sustained YoY growth of 10-30% in housing.
And since housing is a cost input on everything and the biggest line item in every household budget, it has an enormous affect on the entire economy and the wellbeing of everyone.
It also does not help that the government's efforts to drive down house prices in big centres are depressing house prices everywhere else even more.
Selling a house at a profit in New Zealand incurs zero taxes. We're one of the few countries that has a worse housing problem than Canada.
--Anecdata alert-- I bought a condo in california 3 years ago for $395k. Based on the recent sale across the street, it's probably now worth between $500k and $520k. I couldn't afford it today even apart from the rise in interest rates. It was already the ceiling of my budget back then. It's hard not to feel that spending money on anything other than owning real estate makes you a chump, and that even if you do own it, all you're doing is making sure you tread water with everyone else. You can't get ahead...*all* the real estate is appreciating at the same absurd rate. I assume in no small part due to the fact that many of my peers did as I did and spent the first 15 years of their adult lives renting and desperately trying to scrape together enough for a down payment on something, and all those people are now finally able to buy in meaningful numbers. The same insane appreciation trickles down to rentals too, although in an attenuated way. At current savings rates, I could afford buy my parents' house, which they bought when they were about my age, in another 18 years. I would be 53. This of course assumes the cost of housing doesn't continue to go up relative to my salary. Heh. If you consider these savings to be in effect present expenditures on future housing, it displaces money available for everything else - retirement savings, family expenses, charitable giving, leisure...it's a largely invisible drag on the economy in that it can only be seen in the things that *aren't* done.
That's the core of the Georgist argument - we must destroy real estate speculation to make room for literally everything else.
The U.S. also doesn't look great on GDP per capita growth post GFC compared to pre GFC trend. UK still a bit worse, but most of Europe is. It's 50% that the entire developed world would look bad in the first chart, then another 50% made up of a little currency decline, a little extra economic stagnation (more likely due to aging population than government policy), and a little bit of disruption from Brexit and COVID and slightly worse monetary/fiscal policy than other countries.
I think total R&D spending is more relevant than government R&D spending, even when the question is about austerity, because in countries like the US and UK where most R&D is privately-funded, government policy has significant impacts on private funding.
(Loose monetary policy increases all kinds of investment; government spending on high-tech products and services drives R&D in the affected industries; corporate tax breaks can directly incentivize some kinds of R&D investment, and consumer tax breaks can provide indirect incentives, as in e.g. residential solar and EV subsidies.)
If you look at total R&D investment, the US is much farther ahead than the public spending figures alone would make it seem. Wikipedia has a nice summary table: https://en.m.wikipedia.org/wiki/List_of_sovereign_states_by_research_and_development_spending
based on OECD data: https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm
Now, the real problem with the R&D spending hypothesis is that if you go to the OECD page and look at the trends in spending as a percentage of GDP, you see that the UK's rate of investment jumps *up* very dramatically in 2013, nearly doubling in the period from 2013 to 2020. This does not fit with a story of recent systematic disinvestment as a result of austerity.
I agree with this, but then the question becomes "when the UK government stopped funding R&D as much, why didn't British private industry pick up the slack, the way US private industry does"?
I think there might be an answer like "the US has a longstanding culture of private industry investing in R&D, the UK doesn't, and it's hard to develop that culture quickly", but I didn't see Tooze claiming this, I don't know if it's true, and his argument seems kind of weak without it.
That's the thing - I don't think there's good evidence that the UK government did stop funding R&D as much. Like I said, total UK R&D spending is *dramatically up* since 2013, roughly doubling as a percentage of GDP. If in fact public spending was cut, private spending more than made up the difference.
I do think it's a mistake, though, to think of private R&D spending as "picking up the slack" of reduced public investment, as if it's a countercyclical reaction. It actually tends to be a procyclical effect, since the governments that are willing to make public investments in R&D tend to be the same ones that are willing to expand incentives for private investment.
Isn’t this also just a question of economy of scale? R&D is a fixed cost to a large extent and if your domestic market is at least five times smaller perhaps the incentives just don’t line up.
"when the UK government stopped funding R&D as much, why didn't British private industry pick up the slack, the way US private industry does"
It might be useful to look at the largest UK companies. Going by revenue and using Wiki I get this list:
*) Shell (oil and gas)
*) BP (oil and gas)
*) Tesco (retail)
*) HSBC (banking)
*) Aviva (insurance)
*) Rio Tino (mining ... mostly in Australia and Canada)
*) Legal and General (insurance)
*) Unilever (British equivalent of P&G)
*) Lloyds (banking)
*) Vodaphone (telecom)
*) Glaxo Smith-Kline (pharma)
A few things should leap out:
a) NO TECH
b) Lots of "older industries": Resource extraction (oil and gas, mining), banking and insurance
c) Except for Glaxo Smith-Kline it isn't obvious how R&D would be particularly helpful.
(c) is the key. The United Kingdom (and Europe as a whole) doesn't have much of a tech industry. The older industrial industries (steel, cars, commercial aircraft ...) are more commodity and thus have lower profits but also innovation is harder to show value.
And the Brits lost many of their industrial base in the 1950s-70s. The consolidation of the auto industry (via British Motor Holdings) pretty much killed it in the UK. What was competitive computer (Elliott and Ferranti) and commercial aircraft (de Havilland) industries lost out to (mostly) American firms.
The banking sector doesn't invest in R&D like, say, the semiconductor industry.
This isn't NEW, so it doesn't explain why Britain seemed to stagnate when it did, but it is tough to find anything other than banking where the Brits seem to have a global competitive advantage.
Surely Vodafone is tech?
I used the sector from Wikipedia and don't know much about Vodafone myself, but it is more like AT&T than Cisco, right? Mostly it provides *services* (e.g. cell phone plans) than the underlying hardware (e.g. Cisco routers)?
Googling comes up with this: "Vodafone's competitors and similar companies include AT&T, BT, Orange, Telefonica, Deutsche Telekom, Telstra, Tata Communications and Nippon Telegraph and Telephone. Vodafone is a mobile telecommunications company that offers voice, messaging, and data services."
Which seems more telecom than tech the way things are scored today.
Still, maybe Vodafone is a tech company and could benefit from lots of R&D spending (though then AT&T and T-Mobile probably can, too ...)? The primary point seems valid, though: The UK doesn't have nearly the companies that can benefit from large R&D spending that the US does. Same holds for Europe as a whole.
Or do you think this analysis is flawed and either (a) Europe and/or the UK have lots of tech companies that can benefit from high R&D spending, or (b) other industries (aerospace maybe?) can take up the R&D spending slack and Rolls Royce (as an example) could easily increase their engine R&D spending and expect to see a return on that rather than just waste the money?
No. It's worth remembering that US tech firms (software firms) allocate ALL engineering expense to "R&D" from an accounting perspective. Even if they're just writing their 10th chat app, this is nonetheless considered research spending.
This fact alone can explain a big part of the gap.
The UK like most of Europe can't develop a tech sector partly because all the best tech people are working in the local outposts of US firms.
One of the great tech advances of the past 20 years was fracking. It turned the US from an oil importer to an exporter and is a huge reason for the US recovery after 2008. The UK has done some fracking and has the resources in the ground. The question is why couldn't they take advantage of that technology? No reason they have to develop it themselves - just need to implement it. Seems to me, the biggest reason is Gov and public efforts to stop fracking and other resource extraction.
"The question is why couldn't they take advantage of that technology? No reason they have to develop it themselves - just need to implement it. Seems to me, the biggest reason is Gov and public efforts to stop fracking and other resource extraction."
I think the lack of fracking in the UK is a policy issue rather than a technical issue.
But the same is true for lots of disfunction there (and here!). So more R&D spending isn't going to help with THAT part of the problem (in either country).
I concur!
It's been a while since I looked at this, but as I remember, it is really hard to find convincing evidence that public R&D has much of an impact on economic growth at all.
Here's a nice, simple explanation*: "resource curse", where our 'resource' is not oil or coal (any more), but cheap imported labour (both skilled and unskilled). This would explain the worst-in-class productivity growth and the terrible wage growth. It's also had a number of unfortunate side-effects (housing & infrastructure pressure, education & cultural challenges), which could have been mitigated through good governance but were not (for a number of different political reasons, plus the permanent omnishambles that is the Civil Service).
This resouce, the result first of the Empire and then of EU membership, allowed us to live well, 'beyond our means', for far longer than our policies and governance would have naturally allowed. Depending on your preferred metaphor, Brexit has either ripped off the bandaid and and made things hurt a lot all at once (but now we can see how big the cut beneath is and do something about it...), or kicked out the load-bearing wall that is holding up the whole house.
* Because this is nice and simple I mistrust it, though it feels true and matches my lived experience in the UK.
My understanding was that the specific instance of a 'resource curse' involving currency appreciation was the 'Dutch Disease': https://en.wikipedia.org/wiki/Dutch_disease, but I'm not hugely attached to the term. If you don't like it, feel free to think about it instead as a 'paradox of plenty' - we had plenty of cheap labour, but it doesn't seem to have helped as much as you'd expect it to.
"the fact that everyone there speaks English (the universal language) and it has rule of law" is a huge part of it as well - I should have added that to "Empire & the EU" in how it came to be - so thank you for highlighting it.
If true that would definitely be harmful to this theory. Do you have any links? Best I've found (in the 5m since you posted!) is this: https://data.oecd.org/chart/790m
and the similar indicators on that site - which seem to show the US having comparable inflows for workers to the UK (72k vs 52k), despite having a population ~5x the size.
Presumably that's only legal migrants though. If we are referencing low skill immigrants and the border with Mexico then presumably we are talking illegal immigrant flows, and googling suggests the total illegal immigrant population in the US is somewhere in the range 15m-30m
Funny how that number doesn't ever seem to go up much over the decades.
And yeah, one's perception of how the economy in the US is doing depends on whether or not one wants to live in simple inexpensive housing and work in lower-skilled labor.
Those UK numbers are hilariously wrong (on the low side).
1. The government itself doesn't know the true numbers and all official estimates are wrong by many multiples.
2. The OECD numbers are for "permanent" immigrants, but huge numbers of people arrive, claim to be temporary workers and then end up staying. And of course even if they are in some sense temporary they still need housing and still compete for work during that time (even students).
3. Actual migration numbers are more like ~500k a year (there was a methodology change in 2020 and suddenly net migration doubled). See the second graph here:
https://www.bbc.com/news/uk-63743259
You have a country with a population of in theory 67M which grew 500k in one single year, that's LEGAL migration and doesn't even count illegal migration.
The scale of migration into the UK is just vastly different to the US, it's not even comparable.
Framing it as a "resource curse" is confusing.
Essentially you're saying that having a large labour supply suppresses wages and reduces the need for capital investment in labour saving technology. But a lot of economists would accuse you of falling victim to the Lump of Labour Fallacy (https://en.wikipedia.org/wiki/Lump_of_labour_fallacy). Others would probably agree with you, especially if you look at unskilled labour.
I don't think I'm arguing that there's a set amount of work that needs to be done, and that importing labour has taken that work away from native workers, which is what I think the LLF would be? That's probably happened in some cases, but not in others. I guess I'm more interested in how the ability to import cheap labour has distorted or blocked the price signals that might otherwise have driven investment (as you mention) or policy changes (particularly re. healthcare & salaries there).
I'm not sure it works, because as Mike wrote, typically the resource in question is having effects on labour/wages. It doesn't really make sense if labour is itself the resource.
If I had to claim the UK had a resource curse, I'd point at London's financial sector.
interesting there's a term for it, I see it a lot. See also "feminism halved everyone's wages by doubling the number of workers (implicitly sharing a permanently fixed amount of work)"
It’s called the “lump of labor fallacy”. In France, it led to the 35 hour work week, with catastrophic consequences on the economy.
"Lump of labour fallacy" lol. Economists don't even hide their biases, they just "refute" your argument calling it a fallacy and boom, done.
The entire idea of the resource curse is one of the "big lies": IRL, there is no such thing, and countries with more resources tend to be more affluent unless they are/were recently run by socialists or similar non-viable ideologies.
Indeed, a few moments of thought would reveal the obvious - if you see only slowly increasing per capita productivity, but you are importing low-productivity labor, for that to be the case, you would need to be seeing significant productivity increases on your indigenous population to make up for the low-productivity imports.
The government simply doesn’t feel a need to prioritise productivity and nothing seems to convince them to make it a priority. The “northern powerhouse” is basically a comedy meme at this point. That’s basically what’s going to happen when the government is defined by the unproductive elements of the national economy: Landlords, Pensioners, SpAds, and Yellow Journalists.
As a Brit, it is clearly housing to a very large extent, in London and the South East at least. Particularly the "Green belt", which is a remarkably effective way of blocking development in exactly the place it's most needed (surrounding productive cities). Although planning in general is pretty miserable in the UK: lots of uncertainty around the eventual process, and plenty of opportunities for people to veto or appeal.
It's quite different outside London, where incomes and GDP are much lower. There's a convincing argument that lack of transport infrastructure (either public transport or road networks) means UK non-London cities are in effect much smaller than they appear, so they lack the expected agglomeration benefits, see https://www.tomforth.co.uk/birminghamisasmallcity/.
On R&D, I'm not sure how that figure is calculated exactly, but the UK Government has been giving away significant R&D tax credits for things that you probably wouldn't exactly consider research. And I don't think I'm alone in not being sure how to calculate it - the UK Office of National Statistics recently revised their estimate upwards by 62%: https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/researchanddevelopmentexpenditure/articles/comparisonofonsbusinessenterpriseresearchanddevelopmentstatisticswithhmrcresearchanddevelopmenttaxcreditstatistics/2022-09-29.
Hijacking your thread a little to make it the *planning & housing issues* topic and adding this link which pretty much backs up what you're saying here:
https://www.sambowman.co/p/democracy-is-the-solution-to-vetocracy
Sam had another good article arguing much of what is in this post: https://www.sambowman.co/p/britain-is-a-developing-country
The behaviors listed in that article happen in the US too, but the US has a much more heterogeneous political landscape as well as way more physical space. This means there is almost always some municipality that will welcome the population growth (though places are more constrained than others of course). It probably doesn't help that the UK's economy is more centered on a few large cities (dominated by London). The US has more metro areas to move too if you need jobs or cheaper housing.
I worry the UK is the future for many big cities in the US unless we refocus on growth and remove restrictions that raise the cost of housing, childcare, etc.
Tom Forth also had a good answer to the obvious question of why American cities do have agglomeration without public transport.
And it was that they have urban highways, except for a few cities in the northeast (and Chicago) which do have public transport.
Tom lives in Leeds, the largest city in Europe without a dedicated non-road transit system.
Yeah, that was what I was alluding to with "road networks", though I should have been more explicit.
It's not that British cities don't have roads. It's that they don't have roads the way Houston or Los Angeles have roads.
Leeds is especially bad (it has one of the worst bus arrangements in the country, overwhelmingly dominated by the private operator First; it doesn't have a tram or a metro; local trains cover a relatively small part of the city, the central station is at capacity with the services still inadequate, and only two lines are electrified, so there's lots of diesel trains (which are very poor at frequent-stop local services compare to electric). Only Bristol of the UK's main cities is as bad as Leeds (it's somewhat smaller).
Other major cities generally have either a metro (Glasgow, Liverpool, Newcastle) or a tram (Manchester, Nottingham, Sheffield, Edinburgh). Cardiff has really good local trains (branded as "South Wales Metro", but they're regular trains, not a true metro) as does Glasgow.
The coverage of those metros and trams tends to be inadequate (only in Manchester is even a majority of the city and suburbs within walking distance of a tram stop, and there it's a narrow majority), but at least they exist.
It's worth contrasting with French or German cities of comparable sizes which have massive tram networks and sometimes metros or S-bahns.
I don't have a good answer, but it seems to me that most of the data shows the slowdown starting around 2008, which makes Brexit/other recent government decisions unlikely to be primary causes.
Yes it seems like the UK has made a series of bad decision since then. Brexit likely exacerbated things, instead of causing it.
It probably made no difference. EU single market doesn't have much impact on services.
I wrote the following back in 2019, and then emigrated in 2022 (having been delayed from doing so by various governments’ overreaction to covid). I paid over 40% tax on my salary in my final year in London (that’s over 40% overall, the highest marginal rate was of course 62% between £100k-£125k). I now pay well below 20%, and enjoy an exponentially better lifestyle. Many of my former colleagues have followed me, and others are planning to do so. I wrote the following not in anger, but in sorrow, about what I perceive to be the UK’s inevitable, and almost inevitably cataclysmic decline:
“There is no money, and those who remain here are being taxed unsustainably. The top 16% already pay 67% of all income tax and overall the top 1% pay almost 30% of income tax. 60% of income tax is now paid by 10% of taxpayers with 95% of those working in the private sector: researchbriefings.files.parliament.uk/documents/CBP-8513/CBP-8513.pdf - top of page 5. An £80k salary puts someone into the top 5% of UK earners: www.theguardian.com/politics/2019/nov/22/factcheck-earning-80000-or-more-top-5-of-uk-earners-labour.
Between 2000 and 2020 there was a near-doubling of NHS spending and a 60% increase in welfare spending (www.gov.uk/government/statistics/public-spending-statistics-release-february-2020/public-spending-statistics-february-2020). There have been nearly 15 years of low growth coupled with huge increases in benefits and healthcare to the cost of pretty much everything else: www.economicshelp.org/blog/5843/economics/economic-growth-stats-2.
Increasing rates further doesn’t work: people will leave or choose to work less - e.g. 90% of GPs are part-time, keeping their salary <£100k (www.pulsetoday.co.uk/news/workload/nhs-england-says-almost-90-of-gps-work-part-time-in-response-to-pulse-survey.)
For over a decade, most of the population have been parasitic on other people's hard work (there's no such thing as 'government money', only other people's money)…”
Full analysis at https://bit.ly/UKprognosis2
Is imprisoning socialists something you actually approve of?
Thank you for your reply. My webpage was primarily just a scrapbook in which to save interesting articles. I certainly do not profess to have any solution to the UK's issues. The only advice I offered, and that I would still strongly urge, is that anyone earning over the median salary of £28k, or who has significant assets in the UK, should emigrate, taking their assets with them.
If you demanded that I must recommend policies for the UK, I suggest what I would call, "Ripping off the plaster", i.e. stop mincing ineffectually towards ever-higher taxes and welfare payments, just accept that inexorable direction of travel and finally commit to the project. Specifically, implement all of the following:
1. Impose 100% tax on salaries over the median of £28k. (Make the rich pay their fair share)
2. Provide a generous universal basic income at the level of the median salary, i.e. £28k, so no one ever needs to work again. (Stop penalising the poor and the unlucky)
3. Expropriate all private pensions and redistribute them on the basis of equity. (Private pensions and property are the greatest remaining sources of untapped wealth in the UK)
4. Remove the Principal Private Residence exemption, and impose Capital Gains Tax ("CGT") on any increase in properly value during ownership tenure. (Raid boomers' unearned piggy banks/cash machines)
5. Increase CGT to income tax rates.* Max CGT is 20%, max income tax is 45%. (Stop subsidising Tory donors) (* Under point 1 above, income tax would be 100% over the median income, of course. )
6. Remove all inheritance tax exemptions, and increase the rate to 100% - i.e. total confiscation of all assets on death. (You're dead, you can't spend the money but poor people need it)
7. Merge so-called National Insurance ("NI") into income tax. (It's never been a hypothecated tax, it's just a way to bribe Tory-voting pensioners because they don't pay NI)
8. Nationalise all private landlords' property, and turn it all into social housing, capping rent at housing benefit levels. (Stop rent seeking boomer leeches from exploiting the young)
9. Scrap non-dom status. (Stop corporate executives working in the UK without paying UK taxes on their worldwide assets)
10. Impose a wealth tax on all assets over the median level of saving of £12,5k (Less than 1% of the UK population owns half of the land in England; collectively, homeowners only own 5% of the country)
11. Ban foreign ownership of property, give owners 12 months to comply and allow HMRC to seize and sell properties to bolster national coffers. Reverse the burden of proof for HMRC to seize such assets, and remove the right to challenge seizures in court. (Stop oligarchs using UK property for speculation)
12. Partially nationalise all companies operating in the UK - starting with 10% of shares in all UK companies. This was in the Labour 2019 manifesto for UK companies over 250 employees, but why limit it. (Inclusive stakeholder ownership. (Nationalising the means of productions prevents the bourgeoise from exploiting the proletariat - 10% should only be the beginning)
I should declare an interest: I left the UK last year, having sold all of my property, liquidated my assets and transferring all of my funds from GBP to USD. I do however think that the above options would be more economically coherent than the current status quo of lurching grudgingly towards a similar end point, and regardless of the outcome it would be both fascinating and entertaining to observe from afar.
I recommend caution when interpreting figures for wages/earnings.
Say someone is working as an employee at Big Business Incorporated with a salary of £60k/yr. They quit, create their own company with themself as the sole owner and employee, and sell their services to Big Business Incorporated for £60k/yr, paid to their company. Their company then pays them a £12k/yr salary (the maximum tax-free amount) as an employee, and the remainder to them in dividends, in their capacity as the owner of the company.
This is a good deal for Big Business Incorporated: they get the same work for the same pay, without providing any of the ancillary benefits (statutory leave, notice periods, etc.) that an employee gets. It's a good deal for the worker, too: their income will be subject to corporate tax and dividend tax, which are less than the income tax they were paying previously. It's a bad deal for HMRC (the tax agency), who lose out on some tax revenue. But, in the statistics you're looking at, I think this would show up as a drop in wages/earnings, from £60k/yr to £12k/yr for this individual.
There's a continual struggle between HMRC and industry to determine to what extent this is permissible. If you're working for three or four companies at a time, never for more than a couple of months, then you're certainly a contractor, and are permitted to declare your earnings this way. If you're working for five years at the same desk, doing the same job as when you were a regular employee, then you're probably going to get in trouble. In between there's a lot of grey area, and HMRC struggles to define clear rules and prove in court when they've been breached.
My impression, from friends in the industry, is that there was a strong trend toward incorporating and declaring oneself a contractor for tax purposes through the 2010s in the IT sector, and that there's been a crackdown in the last couple of years. This sector might be enough to make a significant difference in the earnings plots you've shown, or the same could apply to other sectors. If I'm correct about this, then future figures for wages/earnings should increase relative to GDP per capita (as a consequence of the crackdown): their decrease relative to GDP per capita through the 2010s will have been an artefact from an accounting trick.
This wouldn't effect GDP though.
Agreed. It's an explanation for why growth in wages undershoots growth in GDP per capita in the 2010s in the 15th (2nd-to-last) plot in this article, but it only explains the difference between them: the reduction in GDP growth itself needs another explanation.
I don’t have any great insight as to causes, but I’m friends with the head book/paper conservator at Cambridge University. Cambridge is a great place to live, with expected very expensive housing and other costs. He was hiring a new conservator—a highly skilled, specialized, valuable job. The starting pay was 25k GBP. I was absolutely gobsmacked. I have no idea how anyone can live on that in Cambridge.
I don't know how the finances work out, but this seems to not be new. From Liar's Poker by Michael Lewis (writing about 1985 so adjust for inflation):
"Salomon Brothers had written me in London to announce that it would pay me an M.B.A.'s wage—though I had no M.B.A.—of forty-two thousand dollars plus a bonus after the first six months of six thousand more. At that time I hadn't had the education required to feel poor on forty-eight thousand dollars (then equivalent to forty-five thousand British pounds) a year.
Receiving the news in England, the land of limp paychecks, accentuated the generosity of Salomon's purse. A chaired professor of the London School of Economics, who took a keen interest in material affairs, stared at me bug-eyed and gurgled when he heard what I was to be paid. It was twice what he earned. He was in his mid-forties and at the top of his profession. I was twenty-four years old and at the bottom of mine. There was no justice in the world, and thank goodness for that."
So ~22,000 pounds a year for a chaired tenured prof at the LSE in 1985.
So, 62k GBP-ish for a chair at LSE today? I bet that’s probably not too far off the mark. The UK has a terrible track record of underpaying their academics, which leads to a substantial brain drain to the US. It’s mystifying.
Professors' salary at Bristol, UK which was the first I could find: http://www.bristol.ac.uk/media-library/sites/hr/documents/salaries/grade-m-professors-salary-scale-feb-23.pdf starts at around 70K rounded up. LSE would probably pay both more in terms of its prestige, and a "London bonus" on top of that.
UK probably overpays them given how little value they generate!
“At that time I hadn't had the education required to feel poor on forty-eight thousand dollars (then equivalent to forty-five thousand British pounds) a year.”
Well that’s not true for most of the eighties (although there was a blip in 1985). The pound is about 1.8 dollars for most of the decade. It’s worth 2 dollars in the early 90s, around 1.5 for most of the 90s and gets to 2 dollars by 2007.
Since then it’s been trending towards parity
Further to my comment below, I should perhaps have cited the conclusion not the opening:
“The UK's Overton window was set decades ago by well-intentioned post-WWII socialists who implemented superfically attractive schemes of healthcare and benefits which were sadly both economically illiterate, and - in the long term - deeply counterproductive. They effectively threw evolution into reverse. The UK's fate was determined once more than 50% of the electorate became net “takers”. This outcome was inevitable given policies implemented in the post-WWII years. The UK has been on an accelerating downward spiral of higher taxes and worse productivity ever since. Now that parasitic voters are the majority, they will – quite rationally – insist on voting themselves increasing swathes of other people’s hard-earned money. The only rational choice for the latter - if they can - is to get out:
• The 46% of productive people in the UK who put in more than they take out are shackled to a corpse. They cannot change the reality of UK productivity and economic performance, and the policies which in a democracy must flow from that.
• Those who do not want to suffer ever-higher taxes and wealth confiscation should emigrate. Between Dubai, Hong Kong, Cayman, BVI, Singapore and other locations, there is no requirement to ever pay more than 17% tax ever again (if that).
• The UK is long overdue a vast correction to reduce the standard of living to a sustainable level. The process to get there will take decades and be brutal.
• Project Fear will be wishful thinking. The UK took a wrong turn by embracing socialism in 1948. Its subsequent economic history has been one of continuous decline, puntuated by temporary and non-replicable periods of superficial adequacy (joining the EU, selling off utilities, North Sea oil boom, selling council houses, printing money, suppressing interest rates, increasing borrowing, increasing taxes). The barrel is now empty. Those who can should get out.”
Full analysis at https://bit.ly/UKprognosis2
Cheerful.
Yes, agreed! ;) All very sad. I feel most sorry for those left behind, unable to escape.
And, unfortunately, probably the most accurate explanation for long term stagnation or decline in the comments section.
Oh there are some problems with it. The U.K. is a capitalist, not a socialist country, and has a strong financially driven economy. After all thatcher did happen.
The NHS is cheaper than the US health system, and if the U.K. is spending a lot of money on transfers then that is often driven by a generous pension system.
Nye Bevan explicitly described the NHS as "pure socialism", and as has been extensively noted recently it is the the single greatest cost to the UK, and continues to increase. Please see my linked webpage above, and search for 'Bevan' to get a hyperlink to the source of Bevan's quote.
Comparisons to either the USA, or to the UK pre-1948 are - respectfully - fallacious. I fell into the same trap before working overseas extensively. Please see, inter alia, https://www.google.co.uk/search?q=Kristian+Niemietz+NHS+US+alternative. The NHS is one of the worst systems in the world, but jingoism prevents many in the UK from recognising that.
The NHS is socialist. It’s also not great.
However this doesn’t make the U.K. socialist. Might as well say that the US is socialist because of pensions and Medicare. Or because the government backing of mortgages which is more interference in housing than any European country.
“ Comparisons to either the USA, or to the UK pre-1948 are - respectfully - fallacious. ”
Respectfully, you are telling me what I can compare or not. The US healthcare costs are higher than in Britain and that’s a cost to the economy.
Maybe the problem with the U.K. is socialism. Maybe it’s Brexit. Maybe it goes back to thatcher and her decimation of the manufacturing base of the country. Maybe wages are falling because of immigration (although I’m pro immigration there are limits). Maybe it’s the over reliance on the city. Maybe it’s the loss of North Sea oil revenue.
Could be any of these, or all of these. Would need empirical evidence.
That’s all fair. My point about healthcare costs is that there are so, so many better alternatives than the US. Most of the time people making UK-US comparisons are doing so to advance a strawman argument. The link I provided was to many useful articles, most of which focus on European insurance options. They do seem decent, certainly better than the NHS.
Here’s a comment I copied from a commenter on a recent Financial Times NHS article, which suggests that even the Europeans are struggling, though:
“It's not just the NHS which is struggling. Here are summaries of the positions in the biggest EU countries:
• Germany: https://www.focus.de/politik/deutschland/ueberlastung-der-notfallmedizin-warum-deutschlands-notaufnahmen-an-ihre-grenzen-stossen_id_137296558.html
• France: https://www.ouest-france.fr/pays-de-la-loire/mayenne/deserts-medicaux-quels-sont-les-delais-pour-obtenir-un-premier-rendez-vous-medical-en-mayenne-efbea19e-3f42-11ed-b695-eda89e95acac
• Italy: https://www.corriere.it/dataroom-milena-gabanelli/liste-attesa-visite-ed-esami-come-si-prendono-giro-pazienti/d0ed21a0-d5de-11ec-883e-7f5d8e6c8bf0-va.shtml
• Spain: https://www.euronews.com/2023/04/12/people-may-die-waiting-surgery-waiting-lists-in-spain-hit-record-levels
• Poland: https://ciekaweliczby.pl/kolejki_do_lekarza_2022/
That's obviously not a comprehensive study, but a pattern is nonetheless clear of high demand, but low supply. There are two trends: a stagnating supply of workforce and raised demand from aging populations. Europe is in awful situation in terms of competition for its medical workforce. Young people refuse to earn such low salaries for such high responsibility and workload. So-called 'progressive taxation' confiscates from doctors to subsidise baristas et al, and in so doing punishes professionals for being educated, skilled and hard-working. Many doctors therefore immigrate to richer countries inside the EU, and there are also many higher-paying, lower-tax jurisdictions beyond the EU. What is unclear is the role of highly regulated and so non-competitive market of equipment and materials and how much efficiency could be gained by competition between private systems. The stark reality however appears to be that henceforth, quality medicine is only for the rich. That is politically impossible to concede, and so seems likely to remain an unpalatable reality nonetheless.”
Personally, I like the Singapore model of healthcare. I have friends living there, I considered working there myself, and it’s still very high on my list of desirable locations to work in before I retire. Here’s what I wrote about it years ago (under an article about the crippling costs of obesity on the NHS, hence the preamble):
“Taxpayer-subsidised healthcare and welfare has thrown evolution into reverse. Before 1945, fat people would simply have been allowed to die. Now the rest of us are forced to pay for them. Many people are weak-willed, and know that, via the NHS, taxpayers who have made superior life choices will be forced to subsidise the feckless. A better solution is to force people to bear the consequences of their own choices. Singapore's Central Provident Fund ("CPF") is a compulsory comprehensive savings and pension plan for working Singaporeans and permanent residents primarily to fund their retirement, healthcare, and housing needs in Singapore. The Medisave, Medishield Life and Medifund elements of it provide healthcare, but largely without the moral hazard of taxpayer-subsidised systems such as the NHS. Essentially, people are forced to save into personal medical accounts which only they can draw upon. Insurance acts as a backstop for catastrophic and unavoidable issues, but the system largely removes the moral hazard element of people have to subsidise other people’s poor life choices.”
I find it funny how the linked article talks at length about the burden of the top 1% who are paying almost 30% of all income taxes but forgets to mention that their share of total income is even higher than that.
I'd say they're not taxed enough.
As well as the answer below, please see my separate reply below at https://astralcodexten.substack.com/p/highlights-from-the-comments-on-british/comment/21123633, in which I articulate a higher-tax vision for UK - I don't mean that entirely facetiously either. If it will work, great; if not, best to learn that ASAP and implement policies which have a fighting chance.
Thank you for your reply. Here is my view, accepting that it is the product of my personal experiences:
• Society comprises three groups: the Productive, 'Neutral', and Parasitic.
• Taxing the successful and subsidising the parasitic reduces the former and increases the latter.
• If tax-and-redistribution worked, after 75 years of it the UK would now be paradise.
• In fact, the direction of travel has been consistently negative.
• Redistribution sounds good, but in practice it throws evolution into reverse.
Most things in life come down to money. Beyond abstractions and hand-wringing, we get on best in creating resources and allocating them to demand if we put a monetary value on people and activities. The relevant costs and benefits are not particularly difficult to measure. If we could pay people in claps, or empathy, money wouldn't matter, but most workers are reluctant to engage on that basis. So, it all comes to money.
There was one sentence in Jeremy Hunt's 17 November 2022 statement that jumped out at me: “If we are going to sustain our public services and avoid a doom loop of ever higher taxes and ever lower dynamism, we need economic growth.” (www.gov.uk/government/speeches/the-autumn-statement-2022-speech).
Personally, I consider that Hunt’s “doom loop” began decades ago by the tax and redistribution necessary for the welfare state. I was a Guardian-reading socialist throughout my 20s, until: (i) an 8-month full time training course from my Whitehall (public sector) employer evidenced how UK finances were slowly collapsing; (ii) working in the criminal justice system exposed me to the “bottom third” of society, I saw that most were irredeemable and we were throwing good money after bad; and (iii) I changed career and began working in the City, with the "top third" of society (economically).
It only took one year of paying taxes at the 45% Additional Rate (then £150k+) before I emigrated. Many of my colleagues did the same. Others simply went part-time, took lower-paying jobs, or retired early.
I concluded that taxing the top third to subsidise the bottom third does not work. Redistribution punishes - and therefore reduces - net contributors, and rewards - and therefore increases - net recipients. A system which encourages - or even simply enables - people to take out more than they put in is unsustainable. Penalising the productive and rewarding parasites erodes the foundations of society by throwing evolution into reverse. Further, and additionally, without the border fences and capital controls beloved of socialist regimes, any more than limited redistribution is also impossible to implement.
I think the UK is on an irreversible decline towards being a European version of Argentina.
Good comment! It's not restricted to the UK though. Most places are fighting this very important war of ideas.
Thanks, and yes, that’s true. I think the UK is particularly badly impacted however because (a) it has a non-contributory welfare system, which is therefore even more generous than many European equivalents; (b) the UK tax burden has disproportionately been imposed on the most productive – ie in higher-taxing European states, everyone is paying a fortune, but in the UK it’s only high earners; and (c) since the 1980s the UK has become parasitic upon that narrow class of hard-working, well-qualified professional services employees largely based in London. Unfortunately, such people are highly mobile, so the strategy of a one-way ratchet of ever-higher taxes could not continue indefinitely.
A fascinating comparison is the US, where competition between states allows people to escape fiscally incontinent Democrat-run states. For example, this Bloomberg article on 20 July 2023 reported that ‘People who make $650,000 a year in New York can save more than $250,000 moving to Austin, thanks to the lower taxes and cheaper cost of living in Texas.’ - https://www.bloomberg.com/news/articles/2023-07-20/high-income-new-yorkers-save-250-000-by-moving-to-austin-texas. Internal migration figures show Democrat-run cities haemorrhaging their most productive to Republican states.
One of the problems with this debate is that many left-wingers have few marketable skills or qualifications and therefore are not professionally mobile themselves. They thus simply don’t understand that other people made different life choices, and refuse to stick around and be taxed to subsidise the consequences of other people’s life choices.
Left-wingers desperately need “Schrödinger’s taxpayer”: someone simultaneously intelligent, hard-working and capitalist enough to be a highly productive earner; and yet simultaneously naïve, complacent and socialist enough to tolerate the results of their work being confiscated for redistribution, without working less, going part-time, retiring or emigrating. I suspect that, like the USSR’s “New Soviet man” – who was selflessly willing to sacrifice himself for the state – such a figure is a chimera.
Anyway, it’s fascinating to watch socialist fantasies meet reality — from overseas!
🇷🇺🇨🇳🇰🇭🇦🇷🇨🇺🇧🇬🇭🇺🇬🇧💷📉💥😱💀⚰️🪦
Some more sources re. increasing taxes.
- Please see the section entitled "Why redistribution doesn’t work" at https://london2050.wixsite.com/miscellaneous-musing/post/uk-prognosis.
- The key issue is that some workers are so much more productive than others. Many people are "underpaid" simply because they are not making any worthwhile economic contribution. The Oxford economist Paul Collier (https://www.bsg.ox.ac.uk/people/paul-collier) explains it thus:
“Something that every economist takes for granted, but noneconomists find uncomfortable, is that to a first approximation differentials in wages reflect differentials in productivity: people are more or less paid what they are worth. Of course, we are all aware of glaring instances where this is not the case: some people are paid far more than they are worth and others too little. But if employers made large systematic mistakes in matching wages to productivity, they would go bankrupt.” Exodus: Immigration and Multiculturalism in the 21st Century.
Over 25 years ago, in 1997, Lord Rees-Mogg, former editor of the Times, and a political heavyweight compared to his son, wrote 'The Sovereign Individual: Mastering the Transition to the Information Age'. It's now available as a Kindle download, and it's worth reading, even if (indeed, particularly if) you disagree with his projections. http://www.amazon.co.uk/Sovereign-Individual-Mastering-Transition-Information-ebook/dp/B08GL24HGD. I read it years ago, and it shaped my thinking, hence emigrating. Here are some examples:
"Because information technology transcends the tyranny of place, it will automatically expose jurisdictions everywhere to de facto global competition on the basis of quality and price. In other words, governments exercising local territorial monopolies, like most other entities, finally will be subject to real market competition on the basis of how well they serve their customers. This will soon make it unavoidably obvious that the old logic that favored high-cost regimes in the industrial era has reversed. Leading nation-states, with their predatory, redistributive tax regimes and heavy-handed regulations, will no longer be jurisdictions of choice. Seen dispassionately, they offer poor-quality protection and diminished economic opportunity at monopoly prices. In the years to come, they may prove to be more socially unreceptive and violent than regions of Asia and Latin America where incomes have traditionally been more unequal. The leading welfare states will lose their most talented citizens through desertion. …
…like it or not, the old system will be nonviable in the new competitive environment of the Information Age. Any government that insists upon lumbering its citizens with heavy taxes that competitors do not will merely assure that profits and wealth gravitate someplace else. Therefore, the failure of the mature welfare states to curtail taxes over the long term will be self-correcting. Governments that tax too much will simply make residence anywhere within their power a bankrupting liability. …
Taxing capacity in the leading nation-states will fall away by 50 to 70 percent, while it will prove far more difficult to reduce spending in an orderly way. The result to be expected is a continuation of deficits that plague most OECD countries, accompanied by high real-interest rates. …
Areas of opportunity and security will shift. Economies that have been rich during the Industrial Era may well be subject to deflation of living standards and social unrest as governments prove incapable of guaranteeing prosperity and entitlement programs collapse. …
Where possible, all businesses should be domiciled offshore in a tax-haven jurisdiction. This is particularly important for Websites and Internet addresses, where there is virtually no advantage in locating in an on-shore, high-tax jurisdiction. …
Information technology is [also] making it plain that the problem laced by persons of low skill is not that their productive capacities are being unfairly taken advantage of, but rather the fear that they may lack the ability to make a real economic contribution. …
Incomes will become more unequal within jurisdictions but more equal between them. Countries with a tradition of a very unequal distribution of incomes may be relatively more stable under these conditions than those jurisdictions where strong expectations of income equality have developed in the Industrial period."
Finally, returning from 1997 to 2023, here a bleak new essay by the economist Sam Bowman on 18 July 2023 warns that Britain should get used to thinking of itself as “a developing country”. We are mistaken, Bowman sombrely counsels, to imagine that we still belong with America in the front rank of nations. He presents a series of depressing statistics. The US is 39 per cent richer than the UK. Its productivity is 38 per cent higher than ours. In America a newly qualified nurse earns an equivalent £42,000 compared to £27,000 in the UK. In Alabama, apparently, you can earn $125,000 managing a car wash. His essay can be found here, and makes Rees-Mogg's 1997 warnings look prescient: https://www.sambowman.co/p/britain-is-a-developing-country
Do you think any of that has actually happened? Where has this happened “Taxing capacity in the leading nation-states will fall away by 50 to 70 percent”.
Thanks for your reply. I think that the trend is accurate, yes. I’m now working overseas in a huge expat community which is extremely mobile and has fled high tax jurisdictions. During the junior doctor strikes under Hunt as SofA for Health years ago, literally dozens of my friends were NHS doctors, and I even went on one march with them. Since then, a huge % have given up on the NHS and emigrated themselves. Lots more anecdotes from my own life, but I accept that ≠ data.
Please also see my related comments, as I don’t want to spam by repeating anything:
https://astralcodexten.substack.com/p/highlights-from-the-comments-on-british/comment/21123980
https://astralcodexten.substack.com/p/highlights-from-the-comments-on-british/comment/21123633
https://astralcodexten.substack.com/p/highlights-from-the-comments-on-british/comment/21165861
Perhaps I’m wrong though. It’ll be interesting to observe. Assuming that you’re still in the UK yourself, good luck!
"well-intentioned post-WWII socialists " You never seem to hear about the "extremely effective and wise socialists".
Ha ha, indeed. But that is because “Real socialism has never been tried!”. I think that remains the line, doesn’t it? 😂🤡🧨💀⚰️🪦
🇷🇺🇨🇳🇧🇬🇭🇺🇰🇭🇦🇷🇨🇺 https://www.google.com/search?q=real+socialism+has+never+been+tried
I lived in the U.K. from 2006-2012. You could see the beginnings of the malaise then. Until 2008 the post Blair boom was clearly ongoing, and it was a happy place in general. I feel Brexit later on caused a rift in the psyche of the country; if you are going to change your society via referendum, better make sure the winning side wins overwhelmingly. (There’s a similar argument that Scottish independence should need far more than 51% to succeed).
And wages? I was invited back to London recently on the same nominal contractor wages I was earning in 2012. That’s a real reduction of 30% ( at a quick estimate).
Most other people I know haven’t had raises for years, and are far below inflation these last two years.
Meanwhile the U.K. is also buffeted by the culture wars, and the whole thing is amplified post Brexit because the (young) left has not forgiven the (old) right for what they think is a betrayal of their future livelihoods.
And inflation, tamed in the US, is still ongoing in the U.K. (and Europe in general). Two years of 8%+ inflation would be hard to recover from, particularly from what we have seen in the graphs above regarding household income. Three would be a disaster. And there’s the general feeling of a decline in the public space as well.
Still the British are an industrious people and can come out of this in time. It kinda looked like wages were growing pre covid.
Wages will grow if/when immigration is slashed, not before. No chance of that in the short term. Tories are wedded to high immigration as they think it's the only way to keep the NHS going a few more years, Labor are wedded to it because they hate the English.
Only chance for changes there are for the leadership of the conservatives to radically change, which most likely requires electoral decimation.
I mean, I wouldn’t rule low skilled out as a partial cause of low wages in general. However to prop up the NHS needs immigration of a relatively or highly skilled type which doesn’t need mass immigration of the unskilled general type. So I doubt that. (Also if it’s true that these immigrants are propping up the NHS, replacing them would kill it so why would any government stop that?).
Anyway the more obvious support of mass immigration from the Tories is driven by the needs of their pro business and free market branch. Some of these supported Brexit as a bonfire of regulations including immigration restrictions.
Two key drivers of “UK economic malaise” discourse:
1– Recently, the UK has had significantly higher inflation than the US and the Eurozone without as much success at returning to pre-COVID trend. Price stability affects perceptions of economic performance, and most observers expect that the UK’s particularly high inflation rates will require particularly harsh corrective measures (starting from a weaker economic baseline than the US did when its year on year CPI was similar).
2– The UK had above-European-average growth rates during the 1980s and 1990s. Reverting to France-like performance felt like a comedown, particularly because Britons don’t enjoy the sort of labor market protections, free university educations, long vacations, and short workweeks that their counterparts across the Channel have probably traded some of their growth potential for. Continental Europe-like economic stagnation without the various compensations that help the continental Europeans enjoy a higher quality of life per PPP-dollar of per capita income than say, Americans do particularly sucks.
One piece of anecdata: British academics are particularly poorly-paid. This is less of an issue in other fields, but in the field in which I am a professor (CS), the only financially sound reason to take a UK academic job over a comparable US one is family money. I have a longstanding love of the UK and would chose it over the US in a heartbeat, for largely cultural reasons, but I could not justify the approximately 2/3rds pay cut to my wife, in the face of much more expensive housing.
This has had a profound and long-lasting effects for the country's tech sector. The only reason the UK has any presence at all in AI/ML is because of DeepMind, which happened in London because Demis Hassabis was a postdoc at Gatsby and liked it, and has family money. That's not to say there aren't plenty of brilliant British AI/ML academics; it's just that, DeepMind and its ripple effects aside, most chose comfortable middle-class lives elsewhere, and have been doing so for decades.
For calibration: a strong British university at which I would love to work recently advertised a Lectureship (equivalent to an Assistant Professorship) at £38k per year. The Assistant Professorship I landed in the US started at $120k a year, for nine months. You can add the extra 3 months summer funding if you get some grants (an option not available in the UK), which isn't hard in this environment, so effectively $160k.
These are jobs that are supposed to attract only the very top tier of researchers with PhDs, and require huge amounts of training. I only managed to land mine in my mid-30s. £38k. Extrapolate that to the rest of STEM and run that model forward for decades and see what you get.
It’s not just STEM. I have a friend who was a named endowed chair at Oxford in philosophy and left it for the University of Southern California. Money and weather, I guess.
Seconding this comment. In 2012 I was a postdoc in the USA, and received an offer at a UK research centre. A quick check of the numbers revealed that my quality of life, and ability to pay student loans, would have decreased dramatically. I stayed in the USA.
Funnily enough, the 38k was what I was paid as a post-doc in UK in 2008; when I became a lecturer in UK in 2015, I dropped to 35k....also, regarding comparison with US wages: how about the high healthcare costs in US?
If we are talking academics, universities typically have excellent health insurance, so healthcare costs in the US are approximately nil.
Meanwhile averaged across the population, it looks like healthcare costs are around 12k / person / year. Most of that is going to be coming from the elderly though, who are covered by medicare. In short, no way that healthcare costs come anywhere close to swallowing the differential in salary.
Seconding Humphrey, I get excellent health insurance through the university. (And dental, vision, life insurance, etc.) The main cost differential for me will be when I send my kids to college, which will be exorbitant here but isn't too bad in the UK.
Also true in Physics. For an American postdoc to accept a faculty position in Britain typically means taking a pay cut. Relative to an American faculty position the pay cut would be 50% or more.
And yet somehow DeepMind didn't have a problem building Europe's premier AI lab.
Academics overrate their own importance. Pay is probably too high for them in the UK relative to value delivered. The US has a very rich academic sector due to the cultural practice of rich billionaires making massive donations, and because a very tiny number of top universities like Stanford are basically VC firms with universities attached. But the actual value delivered isn't much different. Note how "phd dropout" is practically a tech sector meme.
From my perspective on the ground the decline certainly feels very real, in a way that's not reflected in the GDP stats. Even the median income and wages figures only suggest a stagnation since 2008 at worst, whereas if you asked the median person I'm sure they'd say the standard of living had worsened, even prior to the recent inflation.
I'd say the most obvious cause would be housing. Although this FT article says the housing crisis in the UK is fairly typical for an Anglophone country, and less severe than in non-English-speaking developed countries (maybe the lesson to take away is we should switch to another language).
https://www.ft.com/content/dca3f034-bfe8-4f21-bcdc-2b274053f0b5
The other Anglophone countries, the US in particular, don't seem to be in as dire a predicament as the UK is, whereas some of the continental European countries are arguably in a more similar position. Which makes me doubt housing is the crucial factor, bad as it is. This could be the reason the GDP stats are still relatively strong though, since an inflated housing market will boost those.
It's a bit of an out-of-left-field explanation, but for my entry in the book review contest I argued that Britain has an extreme case of what David Graeber termed Bullshit Jobs. Large sections of the economy have come serve dubious social purposes in the last decades, i.e they're not obviously welfare improving.
https://claycubeomnibus.substack.com/p/bullshit-jobs-review
If the UK really is performing unusually poorly economically in comparison to other developed countries, I'd argue that's the structural factor that's most unusual in the British economy.
To focus in on one part of the discussion - I think the wages/real wages distinction is worth reflecting on.
There are three different wage values that a person might be interested in:
1. nominal wages (which you show), ie the actual figure printed on people's paychecks. It's meaningless.
2. real wages in domestic currency (which you show), ie the figure on people's paychecks deflated by domestic inflation.
3. real wages in dollars, ie the figure on people's paychecks converted to dollars by the contemporary exchange rate.
I think - and I might be misreading - that you posted charts 1 & 2 but, going by your reference to the exchange rate, interpreted them as charts 1 & 3.
I might be wrong trying to correct you here though, because the basket of goods used to deflate (2) is at least partially imports, and so a drop in the pound around this time should indeed make the basket more expensive and so it's kind of a moot point to make.
But that leads to another, fuzzier point. The devaluation of the pound happened basically all in one go in 2008. It's been stable at around the same level since then. And so if you want to use the pound's devaluation to explain stagnant real wages, you have to claim that the effect of the devaluation has leaked into the price of the basket of domestic goods over 15 years.
Which feels like a very long characteristic time for such an effect.
I was thinking of some of the same points. You have to be really careful comparing incomes when using exchange rates. Exchange rates reflect only the relative demand and supply of the currency - which can be quite divorced from the quality of life of the people, including economic quality of life, unless you’re buying the majority of your products from foreign countries.
Graph 1 shows what you’d expect from two swings in the exchange rate in 2008ish and 2020ish. I don’t know the UK economy well, but if there was a substantial drop in oil exports around 2008, as someone mentioned, that could cause a substantial, semi-permanent, one time change in the exchange rate. Same goes for Brexit if it’s true that a lot of financial service activity fled the City for Frankfurt, etc.
So what we see in the first graph are two one-time drops due to changes in demand for the currency. Both of these will have an impact on domestic incomes, but it will be much smaller than the change in the exchange rate for two reasons: only a small part of the economy is directly affected by the drop in those sectors, and as the exchange rate drops it will induce demand for other export products that become relatively cheaper.
On the negative side, the drop in employment in the directly affected sectors will have a smaller knock-on effect domestically as some of those people are temporarily (or sometimes permanently) unemployed and buy fewer domestic products.
Outside of those two drops, you see the economy growing much as other economies do. So when you look at overall domestic per capita GDP growth, you see incomes going up pretty averagely with some temporary slowdowns.
So, my intuition is that tbe apparent difference between some of these graphs is the result of applying a change in the exchange rate to all incomes in the economy, instead of just to the smaller subset of internationally traded products.
Of course the drop in the exchange rate has side effects. The downside is that you can’t afford foreign products as much. (Your cell phone or oil will cost more.) So to that extent people really are poorer. The upside is it’s easier to export as your export prices are benefited. After a short-term adjustment period there is usually a rebound that brings incomes back up - though normally not quite as high as you would’ve been before you lost the valuable oil/financial services exports. The loss of oil revenue may have been inevitable, but the loss of financial services contracts may have been avoided, and one might well blame Brexit for the latter.
Take this with a grain of salt - I haven’t looked at UK economic history for much of this time period and haven’t dug into the data beyond what’s shown in the blog post. There will no doubt be a lot of other moving parts and trying to tease out the relative impacts would take a lot of statistical analysis. My instinct is that Covid, immigration, research expenditures, housing, and the other things people have mentioned don’t fit the timing, effect sizes, or foreign comparators well. But they may have had smaller and/or longer term impacts that cut across across the more visible movements in these graphs.
> I’d also like to understand more about how public R&D spending works. Is the government just funding basic research? Or are they helping companies make products? If the basic research, why are the benefits so limited to the individual country that the research is being done in?
I think I can try giving a bit of insight on this, though anecdotal. I worked in a public British R&D institution for years and the story was, roughly:
1) salaries were awfully low compared to the industry, we're talking below £40k for experienced, senior researchers who could easily go out and earn £60k-£70k elsewhere. Literally only held by their passion for the work, and hiring was super hard. This also because the government explicitly blocked the increase in salaries for years (as it did for all public workers, because austerity)
2) funding was given through grant programs that the workers themselves had to continuously apply to to find money for their own salary - not as bad as it seems like it is in University as some programs were relatively reliable to be renewed, but still, more productivity down the drain (writing often inane grant applications that didn't say much and would be thrown in the almost stochastic and often politics-driven engine of bureaucratic committees)
3) but most importantly, lots of funding was essentially a roundabout gift to private companies. Programs had a much better chance of going through if there was some kind of partnership with a private company involved; then the public money pays for e.g. a few PhD students or infrastructure like supercomputers which is then preferentially used by the companies, with the public researchers mainly getting the crumbs that fall off the table, and often they'd then get to keep any useful results under NDA and patent them, whereas the scientists only published what results they were allowed to in papers and that was it. Industry would always get the red carpet treatment over anyone else. This resulted in some rather humiliating situations - in one my whole group was literally kicked out of a building at short notice and forced to scramble to find a different office to make room for companies that were establishing a presence on campus.
So I think it's understandable how this stuff doesn't work much: poor retention, worse hiring, and what is done often ends up benefiting directly only a handful of companies who may not even exploit its full potential, as the partnerships are designed specifically to boost directly British industry.
Part of the problem with Britain today (and perhaps the past) is the elite dislike of practical subjects. Even mathematics (not practical in its pure form) comes in for attack from British “thought leaders”
This is from Simon Jenkins, bemoaning the “Tory driven cult of mathematics”. Every sentence is bunk, so I will leave to the reader to debunk it in his own way - watch in awe as a graduate of theology wonders about the practicality of math.
https://amp.theguardian.com/commentisfree/2023/jan/05/maths-schools-rishi-sunak-arts-sport
I suspect Jenkins hates mathematics because he wasn’t very good at it, but he comes from an elite class (hence the guardian gig) and it pains him that plebs who may not have even had private schooling, or gone to Oxford, might have some ability here that he doesn’t.
But this couldn’t be right, could it? How could the plebs be smarter than Jenkins, some of these blighters went to red brick universities. Shudder.
This isn’t unique to Jenkins, practical subjects are generally frowned upon even in the elite universities. The future politicians are doing classics and philosophy. And mathematics isn’t the under graduate course for the future ruling class either.
It’s been like this for decades, perhaps for ever, but the chickens are perhaps coming home to roost.
In fairness that's the Guardian. Tories have more engineers in Parliament than Labor and made noises about reallocating funding and focus towards STEM. I think they maybe even did it, unknown, lost track a long time ago. Tories have had computer science grads as ministers several times and currently still do (Badenoch).
I work in a FAANG in the UK. Most people I work with are first or second generation immigrants. It’s really striking how few white, posh, public school graduates there are compared to previous areas I worked in. I’d hazard because there is a fairly objective and high hiring bar and which secondary school you went to isn’t relevant.
Does that point to something deeper? The City has its high performing areas but also seems able to absorb a lot of chummy people into jobs of questionable productivity. Look at all the mediocre MPs who have a vague background in the City but didn’t seem to achieve much.
The British elite, due to class/prejudice, doesn’t seem aligned with wealth generation in the same way that US elites are. Aversion to maths and practical skills is another symptom of this.
> Further complicating this narrative is the fact that Europe in general is experiencing economic stagnation.
My impression is that the EU is handling pretty well overall. They handled COVID decently and the economy in general for Eurozone countries atleast seems much better off than the UK (https://www.theguardian.com/business/2023/may/15/european-economy-expected-to-grow-faster-than-forecast-says-eu)
Plus inflation is also projected to drop significantly.
I think people are misjudging the raw numbers - EU will never have the rapid economic boom enjoyed by the asian countries - the standard of living within the EU is already pretty high, among the top few in the world.
EU was never going to become some sort-of economic "superpower" - indeed, the reality is that no serious politician lobbies for that. The paramount priority is to reduce disruptions to citizens' quality of life and slowly improve it to maximize votes/support.
Thus, I find such shaky comparisons based on wealth to be ultimately meaningless. If a government cannot provide the citizens what they rightfully deserve, then it has simply failed them.
>My impression is that the EU is handling pretty well overall.
The EU is experiencing rapid relative decline. It has gone from 90+% of America and 25%-ish of world GDP in the 2005 to 70% of US GDP and 17.5% of world GDP in 2022. In other words, economic stagnation. They are standing still while the rest of the world moves ahead.
The idea this is inevitable is disproven by the US. In the same time period the US has maintained its relative position even as East Asia grows very rapidly. And the US already had a high standard of living.
> Thus, I find such shaky comparisons based on wealth to be ultimately meaningless. If a government cannot provide the citizens what they rightfully deserve, then it has simply failed them.
Yes, the pro-Europe case is a fundamentally moral one. Not about what is but about what ought to be, what people "deserve." There are few hard or objective measures on which the EU is doing better than the US. But if you feel like European style social democracy is a moral imperative and dismiss the importance of things like wealth then of course Europe is tautologically more European than the rest of the world.
What’s the GDP for if you can’t take a vacation?
The average American takes 18 days of paid vacation a year and spends about $5,000 on such activities. The average European (as in from the EU) takes 21 days off and spends about $2,000. Additionally, while 73% of Americans report being satisfied with their vacations 49% of Europeans do.
It is true that Europeans on average work less than Americans (1600 vs 1800 hours per year). But they're also paid significantly less and have less disposable income in general. ($56k in the US vs $16k in the EU.) There's also more inequality since the US has relatively even labor standards while the EU has on the one hand France (with extremely low hours worked) and on the other hand Greece (which works more than the US).
So basically Americans work about 13% more and receive 350% more in income. They receive about 15% less in vacation time but spend about 250% more during those vacations.
ETA: If you're actually interested in this topic: there's a bunch of fascinating studies about European, East Asian, and American vacationers and how their relative spending has changed as a reflection of things like real incomes.
56k in the US vs $16k in the EU - Where do you have this number from? Even if it is correct, it's most likely nominal not PPP...
It's vacations though, not adjusting for PPP is more telling: if I can vacation in your country and you can't in mine guess who is richer.
But is the number (16K vs 56K correct)? I could not see any source for that...in terms of vacations, if Americans don't have enough Vacation Time then it doesn't matter that they can afford a European vacation...
Yes, nominal. Because nominal is the real number, the amount you have in your wallet and can actually spend. PPP is meant to adjust for the fact labor and materials are cheaper in poorer countries and so you can get cheaper domestic goods. No one actually lives in PPP world. It's useful for certain things but not the default.
Regardless, the PPP disposable income per capita is $62k in the US and $35k in the EU. (https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income) So even with adjustment the EU is significantly poorer. Though less so than unadjusted to be sure.
> There are few hard or objective measures on which the EU is doing better than the US
Could you elaborate on that? perhaps the most significant metrics - happiness of the very citizens EU exists to serve, as well as the strong social net, healthcare systems, education, stability etc. aren't as objective as one would like. But I see you have better alternatives in mind?
> And the US already had a high standard of living.
Again, I'd love to see your outline of what metrics you weigh here to reach that conclusion.. (to clarify, I'm treating QoL relatively w.r.t other W.E.I.R.D countries)
> Could you elaborate on that? perhaps the most significant metrics - happiness of the very citizens EU exists to serve, as well as the strong social net, healthcare systems, education, stability etc. aren't as objective as one would like. But I see you have better alternatives in mind?
Oh no. I'm happy to use all of those except happiness. I think we can agree feelings are not objective. However, I will note the US scores higher on the Happiness Index than the EU average. (7 in the US vs 6.6 in the EU.)
The US spends more on social spending per capita than the EU in nominal terms. If you adjust for PPP it ends up roughly at the same level as Germany, well above the European average. The way that pro-Europeans get around is the US spends a smaller percentage of GDP. But the US has a much higher GDP. In terms of actual services delivered in real terms the US is far ahead.
It also spends more on healthcare. In fact the EU spends less than the OECD average (about $4k vs the US's $13k vs the OECD average of $5k). It also has better post-treatment health outcomes and shorter wait times. While Americans do pay more out of pocket for healthcare the US government pays more subsidizing that healthcare consumption than Europe does on healthcare period. And the greater incomes of Americans mean, even after you take healthcare spending into account, they're wealthier.
I'm not sure what you mean by stability.
> Again, I'd love to see your outline of what metrics you weigh here to reach that conclusion
You're going to deny the US has a high standard of living? This marks you as fundamentally unserious. So I'll limit myself to pointing out the HDI gives the US a score of 0.921, putting it in the top 10% of countries. (And yes, I know they score many individual EU countries higher. All that is necessary for my point is to show that the US has a comparable one and yet still manages to grow.)
I think it's pretty obvious that the US has an unusually high /median/ standard of living, and probably even an unusually high 25th centile standard of living.
But I think it's much less clear-cut if you look at the bottom 10-20%, and those are the ones I care about most.
The US is ahead of the EU on the bottom 10% as well but that's because the EU's bottom 10% are the poorest of Eastern Europe.
If you instead look at only the rich parts of Europe then the cut off for where European social services provide a higher standard of living is roughly at the 10% mark. This is because European welfare largely covers able bodied people who don't work very much or who are welfare dependent while American welfare is based around either supplementing the working poor or encouraging people into the workforce. But this is simply a policy decision and returns to my point about such arguments being fundamentally moral.
Your entire argument hinges on ignoring price differences, which one should always do when comparing countries (or economic blocs).
The US and EU are pretty similar in GDP.
https://data.worldbank.org/indicator/NY.GDP.MKTP.PP.CD?locations=EU-US
This meme that Europe is falling behind is entirely resting on nominal GDP, and it's pushed because it makes the US looks good. If the US was so far ahead, you'd see it in objective QoL indicators such as life expectancy. Yet what we observe there is the opposite. The boring reality is that, adjusted for price differences, the lives of Americans and Europeans have not changed much over the past few decades.
I tend to think nominal is more real than PPP since nominal is the actual world people live in while PPP is an adjustment meant to compensate for the fact poorer countries also have lower labor costs and so cheaper domestic goods. For example, the reality means that Americans move to Europe with fat American salaries and live a much wealthier life in the European economy. The same way they can in Mexico.
But even if you disagree with that: You still see the US pulling ahead in living standards, disposable income, etc. Even on a PPP basis. From roughly on par to the EU stagnating and declining relative to the US (somewhat) and East Asia even more in PPP. In PPP-world Asia has already surpassed the EU in several ways while the US has remained on top (though to a lesser extent than in nominal world).
You're again repeating the same mistake - conflating disposable income with QoL. It completely undermines your point because you're considering one *sole* factor.
https://www.oecdbetterlifeindex.org/#/11111111111
Provides an option to re-weigh each factor. Putting them all equal, you see the US is far behind that its european peers. In both metrics, objective as well as subjective, the EU in general does considerably better - the laws here are strict but effective (case in point, you need something like GDPR to stop big tech like Meta to suck all your data - even irrelevant datapoints that have nothing to do with the platform are monitored. Yet its allowed in the US).
If you view the world through rose-colored glasses, all the red flags just look like flags...
I'm not considering one sole factor. I have mentioned factors as diverse as time off, the quality of vacations, how welfare is provisioned, quality of housing, healthcare outcomes...
You're seeking squishy measures because that's the only way to put Europe ahead of the US. I'm guessing because you have some emotional investment in denying Europe's stagnation. Someone's using rose colored glasses here. It's not me.
In the case of your link the US does relatively well on objective measures (like income, housing quality/costs, healthcare actually provisioned) and relatively poorly on squishy measures (like how safe people feel, how much community they feel they have, etc). But only relatively. Even then the only categories it's below the EU average are in safety and work-life balance.
Interesting attack, considering I'm a citizen of an asian country (well, India to be specific).
Since you're going in the direction of some more "objective" measures, then why is that:
1. US having the lowest life expectancy at birth among OECD: https://infogram.com/us-health-care-from-a-global-perspective-2022-accelerating-spending-worsening-outcomes-exhibit-4-1h984worgmopd6p
2. Highest number of avoidable deaths: https://infogram.com/us-health-care-from-a-global-perspective-2022-accelerating-spending-worsening-outcomes-exhibit-5-1h0n25yvjnkoz6p
3. High IMR and MMR: https://infogram.com/us-health-care-from-a-global-perspective-2022-accelerating-spending-worsening-outcomes-exhibit-6-1h7v4pwyq7z0j6k
4. Deaths from assault ("safety" which you regarded as "squishy") a whopping 6-7x as bad: https://infogram.com/us-health-care-from-a-global-perspective-2022-accelerating-spending-worsening-outcomes-exhibit-8-1h1749vgjy3xl6z
5. Student debt is at an all-time high in the US (but I'll give credit where its due - its slowing down). Still, having $1.6 tn student debt doesn't sound very amazing.
6. Take something as simple as corruption. How far is the US, d'you think? https://www.transparency.org/en/cpi/2022
7. But waiit... its all fake news, right? 'Murica is a free country - freedom of speech, freedom of press! well guess what? https://rsf.org/en/index
How far do you have to scroll down for US?
---
I'm still interested in other "objective" measures you feel to be more appropriate. For one, I'm still waiting on anything apart from wealth.
According to most studies, income inequality in the US is at its worst (https://www.nytimes.com/interactive/2017/08/07/opinion/leonhardt-income-inequality.html) and a Vox tl;dr (https://www.vox.com/2018/7/29/17627134/income-inequality-chart) and another (https://www.vox.com/the-big-idea/2017/2/3/14491964/growth-inequality-comparative-us-europe)
Is this objective enough for you?
(Also, just out of curiosity, are you an american?)
We should NOT completely ignore price differences when comparing countries. Price differences convey very important information. Like Erusian mentioned, typically they convey to you how much people's time is 'worth', making countries that are generally poor and worse off look a lot better than they are.
Think of it this way - if the goods and services being created in any country were equivalent to the goods and services being created in another, their per capita nominal GDP would also be pretty much the same! So if their nominal GDPs are different, you're losing valuable information by missing this!
PPP comparisons are useful, but need to be used much more carefully than they are.
The American population has grown significantly over the last 30 years, Europe’s hasn’t.
Your last sentence doesn’t make any sense. There isn’t anything necessarily (or ”tautologically”) ”European” about social democracy. Other countries can be social democracies (and are).
> The American population has grown significantly over the last 30 years, Europe’s hasn’t.
Even in GDP per capita the US is pulling away. From $27k per capita in 2005 to $38k today (a 40% increase) while the US went from $44k to $72k (a 63% increase). The ratio between them went from 1.6 to 1.9.
> Your last sentence doesn’t make any sense. There isn’t anything necessarily (or ”tautologically”) ”European” about social democracy. Other countries can be social democracies (and are).
Sure. My point is simply that Europe (and social democracies in general) tend to underperform the US. Though this is hardly surprising since most of the world does. The arguments about why it's superior come not from material factors like its better ability to provide a quality of life but from moral beliefs.
Also, there's a particularly bad habit I see among social democracy advocates where they define social democracy so narrowly that they end up basically meaning Denmark and the Netherlands. Mexico is a social democracy but it doesn't do well on many indicators. Social democracy is not necessarily bad but it's not some always successful wonder-government either.
I personally don't think that social democracy is either responsible for the success of Denmark or the Netherlands, or for the poorer performance of Mexico. (I don't claim to know much about economics, but anyway.)
If the GDP per capita of the United States is 72 000 per capita, how is it that 40% of Americans lack enough money to cover a 400 dollar expense?
> I personally don't think that social democracy is either responsible for the success of Denmark or the Netherlands, or for the poorer performance of Mexico.
I think it is to the extent governance in all places is responsible for economic growth or lack of it.
> If the GDP per capita of the United States is 72 000 per capita, how is it that 40% of Americans lack enough money to cover a 400 dollar expense?
They don't. The way they get to that number is by surveying people on how they'd cover an unexpected $400 expense and then excluding anyone who uses any method other than "pay cash out of my own pocket." Put it on a credit card? In the 40%. Ask family/partner/friends for help? In the 40%. Etc.
The number of people who self-reported they simply could not cover the expense was 11%. And the bottom 10% of income in the US is largely people without regular employment. Assuming those groups are largely overlapping, which there is evidence for, almost all full time employed Americans can cover an unexpected $400 expense.
Also, both numbers have declined such that even with the initial measure it's down to 32%.
Having to use a credit card or ask friends for help still implies one is living from paycheck to paycheck.
Sure, governance is responsible for economic growth, but maybe mostly in other ways not directly related to social democracy vs not.
Social democracies are not responsible for much of anything! The Scandinavian countries were just plain old capitalist countries without substantial safety nets until the 50s or 60s, and were already rich countries by that time. They, particularly Sweden, turned sharply to the left and became almost welfare states at that point, and predictably performed substantially worse. In the 90s, Sweden was commonly known as the 'sick man of Europe' because of the abysmal state of their finances. They then reformed their welfare states very substantially, and have recovered to being reasonably well off places with slightly more generous benefits in some areas that are run a lot more tightly than most people who are enamoured of them are aware. Also, be very careful trying to transplant successful government interventions from tiny, monocultural rich countries like the scandinavian ones to bigger places. Thick implicit monitoring of government that comes from very strong kinship and cultural ties is an enormous part of why Scandinavian countries are as well run as they are.
The EU population has grown significantly. By absorbing a plethora of second world economies. I think if the US absorbed Central America and its overall GDP per capita declined significantly - that would be a valid excuse. There are problems with the Euro for sure.
Certainly, but the `stagnation' point also holds if you restrict to specific Western European countries. `The EU' has absorbed a bunch of second world countries. The UK (which the OP was about) has not. Nor have France, Italy etc.
' If a government cannot provide the citizens what they rightfully deserve, then it has simply failed them.'
On the wings of such thinking is disaster borne
I'm curious to know more about your philosophy. What do you think is the role of government?
The role of government is to provide foundational public goods ( https://en.wikipedia.org/wiki/Public_good_(economics) ) like national security and law and order. Almost the most important of these is protection from government itself!
The long history of humankind is of struggling to obtain military power over others and then abusing it. It is only when our governance systems evolved to the point that government placed constraints on itself that people's incentive to improve their own lot through trade was fully unleashed, and this has been the corner stone of all rapid advancement in human welfare (https://ourworldindata.org/a-history-of-global-living-conditions) .
This is why the role of government should be to ensure property rights and supports the functioning of markets. That is what actually gets citizens to high standards of life. Governments that attempt to substantially veer away from this role bring disasters to their citizens. Copy pasting from an earlier comment, extending the point above -
'The most convincing of all are natural experiments - countries that have chosen pro-state communist/socialist policies have done substantially worse. Countries with very similar or identical culture/genetics that have chosen market based systems have done several orders of magnitude better. East and West Germany and North and South Korea are the starkest of those. This is still not all. The experience of India and China should be even clearer. Both countries chose socialist/communist paths, under which poverty, malnutrition and generally poor standards of living remained rampant for decades.
Then they switched over to market based systems. China in 1979 and India in 1991. Both made substantial improvements in poverty rates and all other human development related indicators within short order, dramatically improving the lives of approximately 700 million people at the very bottom of the pyramid, and 3 billion if you count them all.
The same relationship runs the other way. Countries that have switched to socialism, especially stronger forms of it, have created enormous suffering for their people in spite of possessing all sorts of advantages. Venezuela is only the most recent example.
And of course , these facts do not sit in an empirical wasteland. There are very good and empirically sound theories that explain why these things would happen - incentives matter, there are gains from trade, specialisation increases productivity and markets allocate resources much more optimally than social planners.'
Perhaps there's some sort of a critical point here - rich countries slowly become more socialist as the younger generations demand more and more with the knowledge that the goverment is fully capable of providing it.
Whereas poorer countries like India need to first build up capital. It makes no sense to lobby the govement for strong public services if the country can barely stay afloat and manage its political problems as well as improving food security, meeting basic needs, combatting poverty etc.
So from that perspective, current developing countries have a high chance of replicating EU as they become richer and recognize the QoL offered by alternative systems for governance
I've gone to great lengths to outline why we have very good reason to believe that quality of life is not based on government action (beyond public good provision).
You can take one small snapshot in time where a 'rich' country (relative to others) is doing well, slap socialist norms and an over active government on to it, and perhaps see things not break apart for some time. But it will not sustain. The harder you go towards the over active government, the more things will break.Even well off countries like Sweden, once they swing far into welfare state territory, become very dysfunctional (look up Sweden during the 90s).
UK is not the only European country in decline. Even the most advanced economy - Germany - is growing much slower than the US. Most of the European government offered welfare benefits are complete ponzi schemes, dependent on a larger future population, and in precarious positions given current demographic trends. If you don't think this is going to affect quality of life in the medium term future, especially given what I have said, I give up.
You are lacking much empirical evidence here - for instance the very successful European and (even) the US economies are highly mixed economies as is Japan and South Korea and South America. Well everywhere.
The US is a major military power also with large government social spending. No rich country has the limited powers you describe in the first sentence (“The role of government is [just] to provide foundational public goods”), so this is a fairly typical motte and Bailey argument, the motte being social democratic capitalist countries do better than communist countries, the Bailey being that this means that countries should be libertarian.
Evidence doesn't come from just correlations! You have to look much harder!
The comments from AH about an economy overly dependent on housing, low skilled immigration and selling degrees to international students all apply to the Australian economy too
Very true! Plus cost of living here is insanely high
Median dwelling price as a multiple of median household income is >13x in Sydney!
The stuff about housing and a rentier economy sounds like Henry George's thesis on what happens to otherwise successful economies in the long run.
If you ask the Georgists, they'll tell you this is what it looks like to be moving toward the inevitable equilibrium state of housing markets given long enough without war or mass destruction of other kinds. A state in which land is owned by the few and inherited by those lucky to be born to them, who extract rents from the many.
A state staved off only temporarily by developments such as the automobile or mass transit which made land further from city centres viable to live in. Resetting things somewhat and delaying the eventual ossification of land ownership to a later date.
Georgism used to be incredibly popular. I wonder if we'll see a resurgence.
I would be quite happy to see a few advanced economies implement Georgist LVTs as an object lesson to the world. My expectation on what the lesson would be is quite different from most Georgists.
Tokyo does not to my knowledge have LVT, but they do have one of the expected Georgist results where residential real estate is an asset that depreciates like most others. Anyone know what policy differences between Tokyo and the US / UK situation has led to the situation where most residential real estate is built, depreciates to zero, is then demolished and rebuilt.
... though in the limit where the assessed value of the improvement is zero (because it has fully depreciated), the property tax becomes indistinguishable from a land value tax. Is that all that's going on here? There is a stable equilibrium where market values, assessed values, and accounting values all agree that real estate depreciates? And one can get semi-Georgist outcomes without intentionally Georgist policy -- with a sufficiently permissive redevelopment environment, where there is adequate supply of residential units and existing residential housing stock depreciates based on age, then the market value of residential construction depreciates to zero after a few decades, because even though one could still live there, there are better options, and the property tax on fully depreciated real estate is essentially a land value tax. So there's at least one example of reaching a somewhat Georgist equilibrium beginning from the YIMBY direction rather than the tax policy direction.
There was a related discussion over on the Motte: [Is GDP per capita really a good indicator of quality-of-life?](https://www.themotte.org/post/587/culture-war-roundup-for-the-week/121247?context=8#context) Here we have an economy that’s apparently bad in a way not captured by the usual GDP marker.
I was toying with that idea of energy consumption as an index. Intuitively, it seems like a good idea—more energy spent means more production, right? It’s decoupled from currency. We’d expect something like the British shift into housing, or any unproductive sector, to go with a decrease in energy.
Unfortunately, I couldn’t find data for UK energy. Not [past 2014](https://data.worldbank.org/indicator/EG.USE.ELEC.KH.PC?locations=GB), at least. And there are some other problems with the metric, especially regarding technology and trade, which probably have more effect on the curve.
Also consider that inefficient machinery shows up as higher energy consumption. Change in energy consumption might be a really useful stat, though. Countries don't usually go backwards in productive efficiency.
Do you mean the UK? The UK's stagnation does show up in GDP. In 2007, the UK had the 11th highest GDP per capita of any country in the world - even higher than the USA, and the 8th highest among countries with at least 1 million people.
Today, the UK has dropped down to number 22.
There is some data on energy use and generation in this post: https://www.sambowman.co/p/britain-is-a-developing-country
UK suffers from a lot of the same problems as the rest of Europe, except unlike France/Germany, it's economy is less complementary to the US (finance/tech which US does better, rather than luxury goods or heavy industry)
To answer your question about German economy post WW2: immediately afterward it was very bad. So bad. Barter system, food rations, bad. Lack of workers (dead soldiers) was a big reason.
The recovery to become again an economic power is called the Wirtschaftswunder (Economic Miracle), and is worth reading about: https://en.m.wikipedia.org/wiki/Wirtschaftswunder and https://www.investopedia.com/articles/economics/09/german-economic-miracle.asp#:~:text=Germany%20After%20the%20War,the%20start%20of%20the%20war.
Some highlights: replace the old bad currency with a new one, strong central bank, strong regulations, strong social net, large tax cuts, remove price controls.
See also Ordoliberalism https://en.m.wikipedia.org/wiki/Ordoliberalism
Without forgetting massive cash infusions from Marshall Plan, and then effectively making West Germany the most ‘socialist’ Western country to show the Soviets how great the West was
The Marshall Plan only gave $1.4 billion to Germany and it was actually notably underfunded compared to places like France or Italy. It was just politically contentious to send money to Germany after the war. Meanwhile American corporations began to reprivatize (after Nazi nationalizations) various industries even as the war was still ongoing.
American corporations also lobbied against the punishing Morgenthau plan, instead pointing out how profitable an industrial Germany could be as an ally. In part because they preferred the factories and markets of Germany to exist rather than being picked apart as they were in the East (where they were largely shipped into the USSR.) Hoover, a pro-business Republican, was key to stopping it and coordinating such efforts.
Meanwhile both the USSR and US actually opened fire on protests and union demonstrations because they saw it as civil unrest. The USSR, being the USSR, was much more brutal and at one point ran over organizing workers with tanks. They also squashed the plans for a general German union. The unions had to wait until Allied forces left to reorganize. Likewise there was minimal welfare in Germany until the 1960s and the victories of the Social Democrats. But this was after the economic miracle. The miracle started in 1950 while the SDP victory was 1959 and governance in the 1960s.
A clarification: there was minimal welfare in the 50’s compared to what was implemented in the 60’s, but pension insurance, unemployment insurance, and health insurance were all reestablished by 1951. So minimal welfare, but by the standards of the world in the 1950’s, not a minimal social safety net.
(See page 6 on Historical background here: https://www.unedic.org/sites/default/files/2020-01/Insight_Germany-unemployment-insurance-system-ENG_decembre_2019.pdf)
(I edited to clarify that I wasn’t disagreeing with you, just clarifying)
Post-war Germany had among the lowest per capita spending in real terms and the highest as a % of GDP because GDP had collapsed after WW2 so even relatively minimal benefits represented a high percentage of GDP. As the economy grew this percentage dropped until the 1960s welfare expansion.
There is the additional wrinkle that those benefits largely applied to formally employed people which started as a relatively small percentage of the workforce post-WW2 and also grew over time.
So the miracle started with weak unions, limited welfare, and low formal employment in a destroyed economy. Over time unions reorganized, formal employment increased, and welfare as a percentage of GDP decreased until the 1960s reforms.
Edit: I'm not exactly disagreeing with you either. Just clarifying the specifics.
Excellent clarification. Writing clear succinct comments is hard (for me at least), and I appreciate your contribution.
Not at all. I found your clarification helpful and this has been one of the more pleasant and productive interactions I've had on the site.
Hmm. According to the rather excellent Beyond the Wall by Katja Hoyer, stalin was broadly sympathetic to a unified Germany, albeit a demilitarised one. It was the west and the GDR itself that were mostly opposed.
I'm not specifically familiar with Katja Hoyer. However, this is the so called revisionist school of the occupation. Stalin did indeed make such an offer. The west thought it was insincere and an attempt to score a propaganda victory. There was a forty year long debate over whether it was sincere or not.
With the fall of the Soviet Union, the Soviet and East German archives confirmed the traditionalist school was correct: it was insincere and an attempt by Stalin to blame the west for Germany's division. There's still a few revisionists hanging around repeating the Soviet propaganda (maybe Hoyer is one of them?). They mostly peddle conspiracy theories that the records are falsified by the west.
Can you point to the part where 'strong regulations' and a 'strong safety net' played a role, and how? Because it's not there in the wiki article, or in any of the accounts that I've read, which do refer to the abolition of price controls and tax cuts.
I'm basically describing Social Market Economy as an outgrowth of the Freiburg School of Economics and Ordoliberalism. See https://en.wikipedia.org/wiki/Social_market_economy and/or https://en.wikipedia.org/wiki/Ordoliberalism for more details on the role that regulation and a safety net plays in that framework.
Quoting from Social Market Economy on how that works:
"The main elements of the social market economy in Germany are the following:
- The social market contains central elements of a free market economy such as private property, free foreign trade, exchange of goods and free formation of prices.
- In contrast to the situation in a free market economy, the state is not passive and actively implements regulative measures. Some elements such as pension insurance, universal health care and unemployment insurance are part of the social security system. These insurances are funded by a combination of employee contributions, employer contributions and government subsidies. The social policy objectives include employment, housing and education policies as well as a socio-politically motivated balancing of the distribution of income growth. In addition, there are provisions to restrain the free market (e.g. antitrust code, laws against the abuse of market power and so on). These elements help to diminish many of the occurring problems of a free market economy."
Quoting from Ordoliberalism about the role of regulation:
"The concern is that, if the state does not take active measures to foster competition, firms with monopoly (or oligopoly) power will emerge, which will not only subvert the advantages offered by the market economy, but also possibly undermine good government, since strong economic power can be transformed into political power."
This is generic stuff that is highly debatable. I'm asking about the economic miracle specifically, where there are very strong casual links to the price control abolition and less strong but still reasonable links to the tax rate reductions. I wanted to see if there was anything comparable on the things you've put into the same categories.
I didn't put them into the same categories; the people who designed and implemented the public policy did. They didn't want any of the Nazi/Soviet planned economy nonsense, but they also explicitly didn't embrace laissez-faire capitalism, and thought it important that the state "actively implements regulative measures" and include "provisions to restrain the free market (e.g. antitrust code, laws against the abuse of market power and so on."
It seems that you don't think having regulation against monopolization of markets is an important part of the societal structure, but the architects of the economic miracle did think it important, which is why I included it in my brief summary. Similarly for safety net.
See an exchange between Erusian and myself upthread for additional interesting info on unemployment insurance, pension insurance, etc.
ps typo alert: I think you mean "causal" instead of "casual."
Thatcher sold off huge amounts of public housing under the Right-To-Buy scheme, to the people living in them, at massive discounts. This was very popular, since it was basically giving away cheap houses, and bought Thatcher a lot of the political capital she needed to enact the rest of her agenda. In fact, it converted a lot of people into Conservative voters, since people who own property have a reason to protect that property.
However, it meant that the government no longer owned any public houses, and Thatcher certainly did not intend to build any more. It was a one-time-only deal, made for short-term political gain, and a terrible investment in Britain's future. The government had essentially sold off a lot of valuable property at below-market prices in order to create a bloc of lifelong Tory voters, permanently shifting Britain's politics in a Conservative direction while also leaving it without the capital it needed to invest in future generations of Britons. Hence the age gap in British voting patterns now.
The whole 80s neoliberal revolution was like this. The reason America's national debt is so high now is because the Reagan administration completely abandoned fiscal discipline, tripling federal debt in order to slash taxes without having to totally dismantle social services. Basically, the government took out a huge loan in order to buy long-term political support from what would become the boomer generation, guaranteeing them constantly increasing property values for the rest of their lives. This is coming apart at the seams now because the boomers - while remaining completely bought in to 80s conservatism - are getting old now, and there's not enough money left to do it again.
The old British people who are now fucking up the country were deliberately shaped into a constituency of Tory voters by Thatcher in the 80s - not just through Right-To-Buy, but through a whole range of other means. They were guaranteed all manner of special privileges - notably, constantly increasing house prices - in exchange for their complicity in dismantling the social-democratic institutions of the post-war period. These special privileges were expensive and came at the cost of long-term investments in Britain's future. Hence, the state of the country now.
>They were guaranteed all manner of special privileges
Also, inflation proof pensions, while.public sector workers see their salaries eaten away, as Arbituram notes.
This definitely seems like an important, under-discussed, piece of the puzzle
At some point you have to stop blaming Thatcher for all the problems and actually fix them, though.
The people blaming Thatcher want to fix them, but they need to win elections to do that.
And that might not be possible until the people Thatcher bought off die.
These analyses are way, way too macro to capture the malaise here on the ground. I'm a Canadian immigrant to the UK, and the *feel* of the two places is radically different. There are a lot of things I like about the UK, but it does feel like the country is going to the dogs.
- Teachers, doctors, nurses, have all had real terms pay cuts of 20-30% since the financial crisis - the educated backbone of the society can't afford a decent life on two full-time salaries. Inflation just has not been matched by salary increases (junior doctor table here: https://www.bma.org.uk/media/6134/bma-ia-pay-restoration-methodology-13-september-2022.pdf)
My wife is a teacher, is literally one of the best teachers in the UK (they're formally ranked), is making as much as a teacher can make (there are various top-ups for extra responsibilities, excellence in teaching, etc), and if we were both on her salary we couldn't afford to buy a modest terraced house and send our daughter to nursery.
- Speaking of that, the UK has some of the highest childcare costs in the world: Many people I know, who are passionate about their jobs, literally can't afford children and to keep working. These are university-educated professionals doing practical work (engineering, medicine, etc)!
https://www.theguardian.com/money/2021/sep/12/how-do-uk-childcare-costs-stack-up-against-the-best
- Perhaps unsurprisingly given the above, wait times for the NHS are at all-time highs (https://www.thetimes.co.uk/article/nhs-waiting-lists-record-high-2023-pqtqt9rrv), and teacher recruitment at all-time lows (https://schoolsweek.co.uk/dfe-misses-secondary-teacher-recruitment-target-by-over-40/)
- Public dental care has, effectively, been disappearing over the past decade (https://bda.org/news-centre/blog/Pages/NHS-dentistry-have-we-reached-the-point-of-no-return.aspx), with a return to the poorest pulling out their own teeth (https://news.sky.com/story/britons-are-pulling-their-own-teeth-out-with-pliers-because-they-cant-access-nhs-dentists-12920715#:~:text=A%20YouGov%20poll%20which%20spoke,out%20in%20the%20last%20year.&text=People%20across%20the%20UK%20have,NHS%20dentist%2C%20a%20report%20suggests.)
- This sense of malaise goes down to the individual level: A record number of people are recorded as being out of the labour force due to long-term illness. Some of that is related to the wait list point above, but much is fuzzier, even though formal 'unemployment' is quite low. https://www.independent.co.uk/business/unemployment-statistics-sickness-ons-b2339882.html
Whilst long-term sickness is biggest amongst the older, school refusers have shot up, to now c.20% (!) of students missing a large number of classes (>10%) without good reason
https://inews.co.uk/inews-lifestyle/traumatised-children-refusing-go-schol-parents-paying-price-2428811
-UK companies don't really believe in the future. I work for a UK-based multinational bank, and despite a few flashy programmes, we're running on ancient computers and they constantly skimp on training - it's the second-worst in the G7, after Japan (which doesn't even have very many young people to train, and is notoriously averse to digital solutions)
https://www.ft.com/content/608ec0af-58c6-4f50-85e5-c39c05e095fc
- This is harder to capture in macro data, but the *quality* of many things are shockingly bad in the UK. Houses are not only insanely expensive versus salaries (>10x in London), but just bad quality - drafty, moldy, shoddily built, and small. Cars are mostly still manual. Doors use old bolt locks. Street cleaners are manually pushing things around with a broom. A stunningly low proportion of homes have dishwashers, or washer/dryers.
- There so much litter, in a way I haven't seen in other developed countries. People just throw their trash on the floor. It was already surprisingly bad when I arrived in 2013, and has gotten materially worse since.
https://inews.co.uk/news/britain-in-litter-crisis-1055667
Good summary, the housing thing is shocking indeed vs continental Europe (must note it’s pretty similar here in Australia, currently freezing in uninsulated house with poor heating); litter thing is also a good point, truly terrible and awful in UK, but has been for long time: used to travel there as kid in 80s/90s, and coming from France it was always a shock, would be interesting to see some socio-cultural analyses of littering in different countries (for instance, usually very low in Australia, though Melbourne is a tad filthy)
The draftiness of British houses has been something people (at least Scandinavians) have been wondering about for decades, maybe centuries.
My pet theory, it is all because of the Big Tweed. The classic Western (male) sartorial etiquette that originated in Victorian Britain (for men: shirts, waistcoats, suits, and of course, tweed) are well-suited only for wearing in a drafty British house in typical British climate. So the draftiness must go on lest the Savile Row tailoring collapse. My experience of suits and similar is that they are often quite uncomfortable in a modern insulated Scandinavian house, typically designed so that residents may wear t-shirt all year around if they wish.
Interesting idea.
There is a passage in Dostoyevsky’s novel Idiot where the title character remarks that ”abroad” (he has just returned from Switzerland) the houses are colder in the winter than in Russia (where the weather is colder).
If it’s not cold enough to kill people the developers are not going to put much effort into fully locking down the house. Similarly very few houses have air conditioning which is becoming more of a problem.
Great summary! I was wondering how this compares to Canada in your experience. I was just reading similar complaints about Canada - mainly about housing prices being wildly out of reach.
I know people have long explanations for everything, but my sense is simply that it is too damn hard to build property.
This (i) makes office space expensive so hurts employers, and (ii) makes life very very very expensive for everyone who rents or tries to buy housing.
I work in the same industry as my dad, and I earn roughly what he earned at my stage in life approximately 30 years later. Meanwhile, I paid 3x for my first house what he paid for his equivalently sized house in the same area.
Property prices have squeezed money out of real incomes, and the government have responded by raising taxes to try to weakly subsidise housing (disincentivising work and businesses) without addressing the root of the problem, the planning system.
We also waste a disgusting amount of money on a totally dysfunctional health system, that is beyond a joke and is unfit for purpose. At some point, people will wake up and stop worshipping at the altar of the NHS, realise it is an idiotic system that does not incentivise efficiency or outcomes, and we can release massive amounts of money into a productive healthcare system.
So, planning restrictions, and the NHS. My two cents.
New Zealand had *negative* deaths relative to normal years due to covid? Wow.
“Most people's savings are locked in housing, a non-productive sector. “
This is wrong on two counts. No money is “locked” in housing. Every purchase price is a sales price. At a national level, the UK cannot invest more in housing except by constructing more physical housing. I don’t think they’ve done too much of that. They’ve done too little.
Is housing not productive? What if I told you it was a factory working 24 hours a day, 7 days a week to keep you warm and dry?
Exactly. The number of people calling housing 'unproductive' in this comments section has made me realise that most people don't really know what 'productivity' means!
Yes it's quite strange. Someone has to build the houses too, the don't just appear out of thin air. Then people need to be hired to maintain them, expand them, furniture is need to fill them, energy to run them, etc.
The vast majority of the stock of housing in the U.K. is old, not new. Building creates jobs and adds to the housing stock, buying a second hand house doesn’t do any of that. In London you are probably not buying a newly built house.
And of course locking up money on second hand housing is unproductive - if that money went to industry it would increase the number of goods create. This is hardly a radical economic idea.
We have several citations of "austerity" in the post and the comments -- have we established that austerity actually *happened*? When I look at UK government spending (https://www.gov.uk/government/statistics/public-spending-statistics-release-july-2023/public-spending-statistics-july-2023), the only decrease I can see on Chart 1 is from the peak of pandemic spending, and that decrease is still to a much higher spending level than pre-pandemic. Austerity in government spending seems to mean that spending increases less quickly than someone wanted, not that government actually spends less.
I have heard pundits for many countries refer to austerity, but that austerity (almost?) never refers to lower government spending. At most, it refers to slowing the rate of increased government spending.
Either way, is there a reason we would expect increased government spending to be a driving factor in economic growth? Government money comes from somewhere (taxes), and GDP=C+I+G+(X-M). Increasing G usually comes from taking money away from I. Unless we have reason to believe that government spending creates more long run growth than investment, we should probably expect increased spending to be negatively correlated with growth. Maybe there are countries where government investment is especially important, but do we have evidence for that in the UK?
Most discussions of austerity are in terms of reduced welfare spending and social programs. That is redistribution of wealth so it can be used for current consumption, not investment in future growth. You can argue that redistribution increases aggregate utility in the current year, but that seems at best neutral for future growth if the redistribution is shifting C around between citizens and negative for future growth if it converts I to C.
“GDP=C+I+G+(X-M). Increasing G usually comes from taking money away from I.”
Only if GDP doesn’t grow. Clearly.
“Unless we have reason to believe that government spending creates more long run growth than investment, “
To rephrase. Unless we have reason to believe that investment in roads, education, science is better than investment in housing and crypto..
You have to take the charts as you find them, I guess, but many financial charts are intuitively clearer if the vertical scale is log rather than linear.
The UK speaks English, so it’s navel-gazing is more accessible; beyond that, most of this is the general European stagnation.
The caveats to this are that the UK is a bit (not massively) more unequal than other developed European countries, and has much looser employment laws; as such, it has less unemployment (particularly youth unemployment) but more low-wage workers. It’s also got lower public investment, and is inexplicably in love with a worst-of-both worlds model of semi-privatisation which tends to reduce private investment in infrastructure. This isn’t a huge real effect, but crucially it makes everything look crap because no-ones incentivised “make it look nice” or improve user experience. The result is everything seeming more late-Soviet than it is.
Finally, the universal decline in politics manifests itself in the UK as two groups of underwhelming relics whom no-one expects to meaningfully change anything. This probably isn’t a fail-state compared to everywhere else, but adds to the aesthetic aura of doom.
Considering Youth Unemployment, I doubt it's true anymore...many EU countries have pretty low Youth Unemployment now:
https://tradingeconomics.com/country-list/youth-unemployment-rate?continent=europe
One thing that has not been mentioned here at all is income inequality, where the UK takes second place among developed countries, just behind the US. I think that a generally slower economic growth that is also absorbed by the top 1% to a greater degree can feel like economic decline for most of a countries inhabitants.
I couldn't find any nice graphs comparing income inequality over the past years of different EU countries, so I'm not sure if there is something unique going on in the UK.
Two remarks, unrelated to each other but related to the post:-
1. The first four paragraphs of AH's comment (rentier/monopolistic economy, non-productive investment, dependence on cheap immigrant labour, property bubble system trap) exactly fit New Zealand. And yet the charts seem to pick out NZ as doing well,* while the UK is doing badly.
The difference between the UK and NZ is that in 2008 NZ got a Free Trade Agreement with a huge new economy, China, while over the period in question the UK slowly decided to erect trade barriers against its largest markets and suppliers.
* It doesn't feel like that, to someone in the lower half of the income range. My grocery bills have doubled since pre-Covid days, and I no longer buy expensive brands or foods (meat). Income inequality, or at least well-being inequality, seems to be skyrocketing. My housing and other core costs have increased too; the sole exception being medical prescription costs.
2. Just like the Kaya Identity for global CO2 emissions, there is a GDP identity:-
GDP per year = number of people working, times hours worked per person per year, times number of value-producing operations per hour, times value per value-producing action. Employment, hours, work intensity, and "productivity".
(GDP/year is then spread over all people, including children, the aged, and others not in work, to arrive at "GDP per capita".)
All of these components need to be examined. (I'm not doing any investigation here; I'm just writing some introductory notes.)
For employment, looking at Unemployment is highly** misleading; a better indication of the health of employment is "number of prime age (25-54) males in employment". (It's still women who get taken out of the work force by child-bearing and -raising, and there seem to be cyclical (cultural?) factors at work there. So to focus on employment robustness, males are an easier indicator to use.)
In Britain's case, "the 25-54 males in employment" chart on FRED dropped two full percentage points at the start of Covid, it and has only recovered one of them. Everything else being equal, there's half the explanation.
FRED has discontinued its chart of average annual hours worked per employee, but it seems likely that the downward trend has continued over the last decade.
Worker utilisation, or work intensity, numbers are the hardest to come by, but they are critically important. Here's an explanation of what I'm talking about: Say a Costa barista was making 100 coffees in an eight hour shift, but now makes only 80 on average. Or a hairdresser was averaging ten haircuts, but now does nine. They're working the same number of hours, and they're employed, but output is lower, because demand has decreased. Likewise, if a salesperson for Acme Widgets used to write five sales-related emails per hour, but now writes only four, her work intensity has reduced. (Thanks, IT! The new cloud-based AI system is sooo good, really. Even if everything now takes three times as long to do, and re-do, and re-do...)
The reasons why this happens at an aggregate level can be manifold and complex. Enjoy your dive into this rabbit hole. You'll be groping in the dark, mostly; economists are astoundingly lazy, and won't work on anything if the data are hard to come by, even if it's important. Drunk, lost keys, streetlight.
Now, "value per value-producing action". For a barista or hairdresser this is easy: the average sale price of coffees or haircuts sold. Perhaps customers are going for cheaper options. For a security guard? Hmm, that's trickier.
At an aggregate level changes in this figure reflect changes in industrial composition, the relative size of industries. If lots of people in the UK have moved from (say) high-value industrial machinery manufacture to (say) low-value Amazon order fulfilment, they may be still employed, and working the same hours, and working at the same intensity (harder, even), but producing less value than they were before.
This is another rabbit-hole in which to burrow. Enjoy!
** I originally wrote "quite misleading", but this is an American site, and "quite" is likely to be misunderstood.
This might be a local thing, but in the USA GDP is generally defined as the amount of new finished goods and services sold multiplied by their price. Often this is calculated by C(consumer spending) + G(government spending) + I(investment) +N(net imports and exports), although that is more an accounting identity.
Generally though the hours worked per worker doesn’t really come into GDP as opposed to productivity.
A declining currency is usually regarded as a good thing for exporters. The cost of the value add that happens within a country goes down.
What, exactly, does GDP tell you? If I manage to make a car for half the cost that it went for previously, that's an advance. Does it show up in GDP if I don't make more than twice as many cars at the new price? If people buy the same number of cars at a lower price and then use their excess cash to purchase other goods is that neutral? Or a gain in GDP?
GDP, as I understand it, gives zero or negative value to technological improvements. That seems a noteworthy blindspot.
I recognize that adding a person to the population tends to increase GDP, and countries with faster growing populations will show increased GDP growth, yes? How does population growth tend to impact GDP per capita, though? There was a fear that some developing countries would have such explosive population growth that they couldn't develop economically. That sounds like a scenario where GDP growth could hide some deeper problem, right?
You should probably look up how inflation and real GDP per capita are calculated.
Or, you could explain - if you think he is wrong. He’s asked some reasonable questions.
If you can produce a car of equal quality at half the price, the benefit will be reflected in real income. Consumers purchasing power will increase as the cost of goods decreases. If you look at nominal GDP statically in your example, yes it would go down if you sold the same number of cars at a lower cost. GDP at PPP would pick up the increased standard of living for the reduced cost of the same good though. Also you can expect that a car being half the price would pick up a large chunk of market share so GDP may actually go up with increased sales.
Every economics course I ever took emphasized that nominal GDP was not a very good measure. Most people look at adjusted GDP figures if looking at GDP at all
It should be noted that income inequality is higher in Britain than in France, so when they have similar GDP per capita, your median Pierre is better off than your average Peter.
This is pedantic, but similar GDP per capita plus higher inequality means exactly the opposite: the median Pierre is worse off than the average Peter.
Similar GDP -> Avg Pierre = Avg Peter
Inequality -> Median Peter/Pierre < Average Peter/Pierre
Higher inequality -> Median Pierre > Median Peter
Putting them together, Median Pierre < Average Pierre = Average Peter
AH, whose comment you quoted, gave a good summary of the property-related reasons for longer term decline, AIUT.
But in recent years, say the last thirty, another factor has also come to the fore: Successive governments' ever more determined and desperate efforts to "game" the headline GDP figure by increasing public spending, which is included in this pernicious and outdated measure of national prosperity.
The result of the perverse incentive to increase public spending is a chronically bloated and inefficient public sector, such as the rotting albatross round our collective necks called the NHS (National Health Service), huge rates of immigration both legal and illegal (which somehow increases GDP, although I'm not entirely sure how), and various massively expensive and near useless white elephant projects such as HS2 (a Victorian-style rail project that somehow strayed into the 21st century), and of course above all a voracious insatiable appetite for the money to fund it all this public spending. In relation to the latter, most of our large companies and assets have been sold to foreign buyers, and taxes are currently at record levels. So it seems like this GDP Ponzi scheme is fast approaching a denouement.
It's a wonder that institutional investors don't twig that overall GDP (and not even GDP per head) is a rotten measure of prosperity. I suppose the obvious answer is that they know this all too well, but don't want to rock the boat and risk reducing the value of their investments.
Brexit did have a short-term small adverse economic effect, which even the most ardent Brexiters realised at the time of the vote was inevitable. But some politicians and most of the "high-brow" Remainer-biased media (in the UK and the US) have greatly exaggerated the effect and continue, ever more unconvincingly, pointing at Brexit as the reason for all our woes. So I would treat that with a pinch of salt. The big picture is that the UK is really no worse off economically than most other EU countries. We have been agreeing trade deals far and wide ever since we left the EU, which would have been impossible had we still been shackled to it!
> The result of the perverse incentive to increase public spending is a chronically bloated and inefficient public sector, such as the rotting albatross round our collective necks called the NHS
The system that's twice as efficient as the US system?
> The system that's twice as efficient as the US system?
Wow! And that is with the US pinching a lot of our best expensively-trained UK doctors and nurses (so we're told).
I don't know much about US Health Care. But I gather its main expense is the sky-high medical insurance premiums which professionals must pay to cover them for litigious lottery win level negligence claims.
Whether or not the amounts awarded are generally well founded and proportional I've no idea. But I suspect that in many jury-decided cases the sums are punitive and absurdly excessive.
> I don't know much about US Health Care.
I would assume, then,. that you are not a regular reader of this blog.
> HS2 (a Victorian-style rail project that somehow strayed into the 21st century),
If you somehow could rebalance London and the Northern cities, that would automatically help with the housing problem. Admittedly, there's a lot to the "somehow".
I don’t understand why remote working isn’t considered part of this. Once it’s established that well-paid jobs are available in much of the country, northern cities become more attractive and you have a greater density of skilled people to create new businesses etc.
What you also have to factor in when talking about decline is stuff that doesn't show up in GDP figures. The NHS is in a horrid state - to get seen by a doctor, you have to phone the GP surgery on the day you want an appointment, usually when it opens around 8:30am. Everyone is doing this so you are put on hold for up to an hour. Then you have to explain your complaint to whoever answers the phone, and it gets triaged by a nurse - then if you are lucky you get an appointment or more likely a call back from the nurse. This system seems to be an informal way of rationing healthcare so only people who don't have to go to work or drop kids off at school can use it (i.e. mostly old people). Transport infrastructure is also falling apart. The government can't seem to get on top of potholes and there are always problems with the trains, moreso it seems than a decade ago.
Most British people don't look at GDP figures or bother much about how other countries are doing, but still complain of a sense of decline. Its also worth noting that national figures don't show the regional picture - most of the industries doing well are situated in a triangle between London, Oxford and Cambridge. Outside of that the economic situation is comparable to Eastern Europe.
Brexit is too recent to take the blame for this IMHO - long term demographic trends are more likely. We are an aging society that has chosen to pay for healthcare in a way that can get really expensive. Elderly voters have used their electoral power to secure continued free access to healthcare (albeit with rationing e.g. above) as well as absurdly inflated state pensions via the triple lock. The cost of keeping the postwar generation happy drives taxes higher and squeezes out investment.
I had heard that the British health care system was one of the most cost effective.
Its cheap per person but its very comprehensive, and it all comes out of taxes and it adds up to about £200 billion a year so thats about £7k per household per year, for healthcare that you often can't use even when you need it. You end up having to go private and double paying for healthcare. Which, of course, adds to GDP...
This I feel is similar to the Nordic countries, as well as the way you described making an appointment.
OTOH, your £7k coves treatment that could cost $100k in the US system.
Only if you can get it. You might end up being on a waiting list so long that you die. Thats the point I was making - the huge sums paid to the NHS show up as GDP but that doesn't mean healthcare is actually happening. At least not to the extent it used to.
The argument for NHS efficiency has nothing to do with GDP: it's based on the amount paid into the NHS, and outcomes defined by measures such as lifespan. If a lot of people were dying in waiting lists, that would show up in the outcomes, and you would no longer be able to say that the UK and US have roughly equal outcomes.
One sort of problem is that (once you have picked the low hanging fruit of childhood vaccinations, sanitation, and antibiotics), the ability of `modern medicine' to increase lifespan at the population level is fairly limited, and can be easily swamped by the effect of bad lifestyle choices.
It's impossible to decide if something is cost effective in a system without prices.
What ”system without prices”? Of course there are prices.
A lot of comments have highlighted that issues around housing are not unique to the UK, with all of the anglosphere suffering from awful planning and huge housing costs. However, I think there are a few particular characteristics of the UK that make this more important.
First, the UK is simply much more densely populated than the US, Canada, Australia or NZ. Housing here has always been a lot smaller than similar countries (European housing as well) which will surely contribute to a poorer feeling.
Similarly, UK housing stock is very old, with a lot of pre-WW2 housing still in use. This lowers the quality of British housing relative to other nations.
So you've got older, smaller houses than elsewhere with less land. I don't know if there's any data on this, but I would also speculate that the relative shortage of land meant Britain was starting from a higher point with respect to housing costs, but can't be sure on this.
But it's not just a shortage of land - it's a shortage of productive land. The town and country planning act of 1948 has already been mentioned in an earlier comment as being particularly destructive. The creation of "the green belt" surrounding all of Britain's major cities essentially calcified them permanently in their 1950s states, preventing any housing from being located in the most productive areas around cities. I think it would be interesting to look at median housing costs for e.g. the 5 biggest metro areas in each nation rather than the whole nation, or to look at % of total population living in big cities for different countries. I suspect the UK would come out very poorly. After all, anyone can name several major metro areas for the US, Aus, or Canada, but the UK just has London - and even that city is far smaller than it should be.
I have written a few similar comments. I think it's an important point. In the US, and to a lesser degree canada, the political geography is more heterogeneous than the UK (at least from my US perspective) The difference in regulations between states or even between counties/cities in the US can be night and day. (Texas/Floriday vs California/New York is just the headline example). In the US, if a city wont let you build a housing development, there is probably one within 10 miles that will give you a tax subsidy to build it.
There are also many large cities in the US that had really big pollution declines starting around 1960 until about 2000. Chicago for instance, not just Detroit. They have a lot of existing housing that is under utilized (one person in a two bedroom, for example) which helps to lessen the impact of not building new units.
Inflation is high because the UK imports most of its food. Groceries like green beans routinely come from Kenya.
As for the structure of the economy, the UK’s remarkable political stability (plenty of strife and civil wars but no successful revolution) means much ownership of land is still concentrated in the feudal aristocracy, not least the royal family. When combined with a nominally democratic political system that protects their interests (leasehold never abolished, no property tax other than stamp duty on property sales the feudal never engage in), it’s no surprise so much of the economy centers on rent-seeking, often literally.
What was the English Civil War if not a successful revolution?
It didn't last, the monarchy was restored, and it was a revolution based on religious fanaticism, not a change in the social pecking order with redistribution of land. Compare with the French Revolution where the former aristocracy basically lost everything, or gentler versions of land reform in Germany, the Netherlands etc.
Huge swathes of London's most valuable real estate are still owned by the Dukes of this or that, with people not owning the land under their houses, only renting under leasehold, a feudal relic of a legal instrument originally designed to bind serfs to the land.
If you are judging it in economic terms, then the inheritance tax reforms of the early 20th century that removed much of the landed gentry must be considered.
The English Civil War ultimately achieved a constitutional monarchy and the supremacy of parliament, and headed off the possibility of a Louis XIV style imperial monarchy.
Louis XIV is the man who made the French Revolution possible by forcing the rebellious French nobility to relocate to Versailles and cutting them from their provincial power bases. The Revolution in turn ensured land reform, ended the practice of firstborns inheriting everything and of course many other measures that ended feudalism once and forever to the benefit of an ascendant bourgeoisie (Louis XIV is also the first French king to appoint commoners like Colbert as ministers over corrupt noblemen like Fouquet).
In the UK the power of hereditary peers was only (somewhat) curbed by the Parliament Act 1911, but their privileges, including fiscal ones, are still alive today. Just witness how no government seems to keep its promises on abolishing the feudal practice of leasehold (it's described as such left-wing firebrands as Sajid Javid or Michael Gove).
See Terry Pratchett writing about Sam Vimes' ancestor: they had a revolution, and now Ankh-Morpork doesn't have a king. But they got rid of the king, and left all the nobility in place who to this day retain their titles and wealth, and Vimes' ancestor was stymied in making any real, long-lasting change.
That's the fictional version of the Civil War in a nutshell.
Do you know if those green beans travel by plane or boat? Lots of produce is shipped to the US from mexico and south america, but mostly by train or boat which are cheaper transport methods than planes (or trucks).
But the same considerations would have applied with even greater force in the 18th and early 19th centuries, when Britain literally kickstarted the Industrial Revolution. The decline in productivity and focus on rent seeking is a comparatively recent development.
While by the end of WW2 lots of German men had died, the industrial output was falling, and the large cities were in ruins, the industrial *capacity* has not been significantly reduced because machines etc. could and have been sheltered from Allied bombardment - in fact, Germany's industrial capacity has been higher at the end of WW2 than at its beginning. Manpower and access to resources were the limiting economic factors in the end for Germany. Once these impediments had been cleared through political and financial support (Marshall Plan instead of Morgenthau Plan), and workers brought in from e.g. Spain, Italy, Turkey, Germany could quickly pick up the economic pace. Germany had the dubious luck of being *the* frontline in the Cold War and thus the USA saw fit to keep them as an armed, prosperous ally instead of an impoverished, defenseless enemy that might fall to the USSR.
Two surprising points of comparison between the UK and Ireland (only country UK shares a land border with, quite similar cultural background, same language etc.):
average UK wages are 44,700 dollars, average Ireland wages 76,000 dollars;
UK government debt 103% GDP,
Ireland government debt 55% GDP
This is no doubt a consequence of differences in inward investment and “Irelands open economy”, but the differences are pretty shocking!
> This is no doubt a consequence of differences in inward investment and “Irelands open economy”,
There's one other thing....
Check the Irish defense budget... They rely on the RAF for interceptions these days.
Always have. This isn’t all the relevant to the topic.
It helps to explain how the Irish government has kept their spending and debt low, defense being a significant expenditure.
It’s about 2% in Europe.
I am getting around 45000 Euros (ca. 50000 USD) as average wage in Ireland...
Yes. I think he’s confusing GDP per capita with wages.
North Sea oil is one of the free gifts the UK has...the other is the City, London's financial hub, which is dispoportinately large compared to the overall UK economy, and a very major contributor to it. If you want hard facts relating to the impact of Brexit, just look at the number of companies that have left the City as a result...
https://www.ey.com/en_uk/news/2022/03/ey-financial-services-brexit-tracker-movement-within-uk-financial-services-sector-stabilises-five-years-on-from-article-50-trigger
...and the declining surplus:
https://www.ey.com/en_uk/news/2022/03/ey-financial-services-brexit-tracker-movement-within-uk-financial-services-sector-stabilises-five-years-on-from-article-50-trigger
..and of course the pound fell after Brexit and stayed low, as Scott's chart showed.
https://www.economicsobservatory.com/how-has-brexit-affected-the-value-of-sterling
(If a labour govt wiped 15% off Sterling, you would never hear the end of it from conservatives).
Yeah, I never know how to feel about this. I don't much like going back to the UK now; it feels cold and grey and stagnant to me. But I realise that that feeling is mostly a function of reading the news too much, my English parents getting old and grey, and the fact that I live in the tropics. In terms of hard numbers, yeah, it's not obvious that the UK is doing terribly.
Some of the arguments for the UK's decline quoted above seem completely backwards as well: AH suggesting that building lots of cheap housing is a bad thing stuck out as very wrong.
But the UK being in secular decline does seem like it might be true. Outside of London, it's hard to see what there is. I mean, there's culture. British writing and music remain awesome. But I don't know if that's enough to keep us a rich country.
Apart from the economy, the country is over crowded, it has become untethered from sources of identity which existed in the past, and immigration/ multiculturalism has largely had a divisive and demoralising effect on society.
I stopped pretending to understand economics years ago, but if you are interested in public R&D spending in the UK, start here: https://www.gov.uk/government/organisations/uk-research-and-innovation
I think there is also a really fundamental change in culture over the past 15-20 years - really starting with Blair/ Brown. A combination of reforms to taxation/ social security/ welfare/ employment policies; employment legislation and broader human rights (mostly imported from the EU); a massive influx of low-cost, but smart and highly motivated employees from the EU (now being substituted by non-EU immigration) that allowed companies to keep downward pressure on wages and avoid the need to invest in productivity; a high degree of complacency in our elites...all of these set the scene. And then more recently the importation of US cultural issues (BLM, ‘woke’) and the culture war that has caused; the incredibly generous fiscal response to Covid; terrible energy policy; the rise of the WFH culture - which has really set in in the UK to a degree I haven’t seen elsewhere; the stupid in-fighting over Brexit that keeps us re-fighting the last war while not concentrating on the future; and now the deeply embedded self-loathing over our history and our terribly confused response to unskilled mass immigration compound the malaise.
In short, while there are plenty of highly-motivated people, they seem to be wading through treacle in terms of the response of the broader population - and the answer to every problem always seems to be more government: we’ve run a massive deficit for years and there seems to be no prospect of that situation ever improving. Our population feels ever more socialist in its expectations and ideals.
I have three daughters at school/ uni: I very much hope they will have the courage to move abroad and make their way in a part of the world with more ‘get up and go’: I simply don’t believe we can turn this around until we really plumb the depths - and that will take years and much ruin.
Interestingly, many right-wingers in Germany complain about the same...though at least in terms of polling, Germany has moved to the right in the last two years while the UK has moved left...also, Young Germans don't seem to be much more left-wing than old Germans, while young British voters do...
"the deeply embedded self-loathing over our history and our terribly confused response to unskilled mass immigration compound the malaise..... the answer to every problem always seems to be more government"
I'm an observer currently outside the UK but these three points seem very much to get at the bizarre state of the nation.
- Britain has an amazing history, not least as the home of the modern world's prosperity through the industrial revolution, but it gets completely overlooked. So much richness, culture, conflict and achievement has been boiled down just to the topic of racism.
- When Australia faced illegal immigrants arriving by boat 20 years ago there was huge public support for stopping the boats even by various drastic means. The UK response is astonishing in this light, it seems people have become so used to immense immigration and uncontrolled social change.
- It seems if you don't support a govt answer to every issue these days that makes you a free market extremist
Since about 2008, the entire of Europe, not just the UK, looks bad compared to the US: https://danieljmitchell.wordpress.com/2023/07/19/the-welfare-states-damaging-impact-on-europe-part-ii/
A lot of that is the currency fluctuations since 2008. type „dollar vs Euro“ into google and you will see that the dollar went from 0.71 euro in 2008 to 0.9 euro, almost reaching parity last year.
So measuring gdp in dollars is distorted.
"lots of Germans died in WWII, but Germany remained an economic powerhouse"
I'm pretty sure this was not the case. I had a neighbor 'Tanker Fred' who was in the tank company trapped in Berlin in The Cold War. One of the things Tanker Fred said, (paraphrasing) "I could get a very nice meal, with drinks in a fancy restaurant. It cost three marks, which was about 5 cents US." I don't think that's the definition of Economic Power House.
"I’d be interested in seeing the 'government decided to sit on industries in 1900' thesis fleshed out more."
One way in might be to look at the history of British-owned car manufacturers. The UK went from having the fifth largest car company in the world in 1968, British Leyland, to having no mass production car companies with the collapse of MG Rover in 2005. One of the main reasons for this is the Labor government's strategy of cramming several smaller failing manufacturers into one big company with the primary objective of preserving jobs.
https://en.wikipedia.org/wiki/British_Leyland
Lots of good points already but I think it's worth highlighting how some of them react with each other;
Firstly the 0830 charge to get a doctor's appointment, is that a good thing for productivity to have tens of thousands of people on hold for an hour any given morning and still not get an appointment?
Given that in the UK we have 7 million people on NHS waiting lists how much is early retirement from the workforce due to ill health masking employment figures. People no longer looking for work don't count towards unemployment.
Underemployment is another issue, some households aren't enough hours between two wage earners to get by. This means there are many working poor who are recipients of government welfare typically more associated with those unable to work. Food banks have boomed in the last decade and most recipients are in work.
Housing is a scandal; small by international comparison and poorly built houses which cost 8 or 9 times a median salary in all areas and as much as 15 times in parts of the South East and London. New home building is easily blocked at the local level by existing homeowners.
Some housholds with two graduates from this century can afford housing but typically they already have moved away from where they grew up to a larger city with graduate jobs in only to find after a decade they can't buy property there and then move further out of the urban area and end up facing long and expensive commutes back to where there job is (less so post pandemic in fairness).
Child care is so expensive that having two children in full time, full pay nursery at the same time can be like paying three mortgages each month. Or two mortgages on top of rent which may already be 30-40% of take-home pay. So people are not having children or additional children due to affordability issues.
By my count my wife and I have spent around five years of the median household disposable income on rent and childcare in the decade we've lived together.
The planning system means nothing gets built that could transform an area and provide thousands of new jobs. New runways, airports, train lines, nuclear power stations, reservoirs, solar panel farms, sewers, broadband infrastructure, fracking or on-shore wind - whether you think they would be positive, negative or neutral doesn't matter, none of it gets built. With the exception of one east-west metro line through London which no-one wants to repeat the success of elsewhere.
Add on top of this the fact that mortgages don't run on 10, 20 or 30 year fixed rates and people are anticipating extra payments of potentially £500 a month on mortgages as their fixed terms expire and they move to higher rates not seen since pre GFC- the same as a £10k pa pay cut for a household.
So yes, there's a sense of malaise and decline because on top of all this the Government appear not be interested in Governing. People who didn't want to leave the EU and people who didn't get the type of Brexit they wanted are unhappy, one outcome of that is that the recent crop of government ministers has been beyond appalling. You can't get an NHS dentist, there's rubbish everywhere, teenagers don't have youth programmes to keep them occupied, high streets are dying, the roads are congested, the government has spent billions on a smart motorway programme they seem on the brink of scrapping, threw millions at PPE that didn't work in the pandemic, covered up lockdown breaking parties in the heart of Government, had a PM that lasted less than seven weeks and still managed to contain the death of a well regarded monarch who was seen at least as a fixed point of continuity in people's lives.
Other than that, it's great here!
Great comment, summarises many real issues concisely.
I read all ~360 comments here and it is the only one mentioning the looming mortgage crisis caused by 2/3/5-year fixed mortgage structure. I think it's a pretty big deal, millions of households will be hit, many of them are already finding it hard to make the ends meet. Some people on interest-only mortgages (who are usually poor) will start to pay 3x more at some point overnight.
>So maybe we can summarize Eric’s theory as “The British economy isn’t necessarily worse, but after Brexit, some goods cost more money, so the living standard affordable with the same amount of economic production has gone down.”
Sort of. A more precise formulation would be that the British economy isn't particularly worse in terms of international purchasing power, but is somewhat worse in terms of local purchasing power, with the latter being more indicative of cost of living and quality of life.
>Is this economically possible? Suppose that it costs more for Britain to import goods. Some of those goods will be raw materials, which will hurt industry, which will lower production, which should make market exchange rate GDP look worse. I don’t know enough macroeconomics to be able to tell if this should be happening.
It is economically possible for PPP GDP and market exchange rate GDP to diverge, which is a big part of why both metrics are tracked. In a "spherical horses in simple harmonic motion" world, we'd expect PPP and exchange rates to converge very quickly because differences in prices are arbitrage opportunities. In practice, PPP and market exchange rates tend to tell pretty similar stories for rich countries, but diverge by factors of 2-3x when comparing rich countries to poor countries.
The OECD's price level index (ratio of PPP to market exchange rates) for G7 countries ranges from 82 (Italy) to 125 (USA), and for all 50-ish indexed countries ranges from 37 (Turkey) to 138 (Israel).
https://data.oecd.org/price/price-level-indices.htm
An incomplete list of reasons for PPP and official exchange rates to diverge include:
- Currency controls: the official "market" exchange rate is actually the result of price fixing rather than market forces.
- Trade barriers, both natural (shipping costs, etc) and government-imposed (tariffs, quotas, embargoes, regulatory barriers, etc) preventing price differences from being arbitraged away.
- Differences in prices of stuff that's very hard (e.g. labor) or impossible (e.g. real estate) to import and export in the quantities necessary to arbitrage away price level differences.
Any discussion that doesn’t include the energy and housing situation is incomplete at best. The environmental stuff is way more detrimental than Brexit. But the ruling class in Britain likes that, and hates Brexit, so we don’t get a proper discussion.
An interesting theory explaining why things may feel worse than Econ indicators show: population is significantly undercounted, so per capita metrics are lower in reality than on paper: https://twitter.com/echetus/status/1682676824420253697?s=20
I’m confused by the claim that there are no checks via sea and rail. You get your passport checked getting on to Eurostar. I haven’t taken a channel ferry but would be surprised if they don’t check on either side there too. I don’t see why the government couldn’t use that data to generate an accurate view of who’s in the country.
There are no passport checks going to Ireland but still ID checks.
It's because Britain is systematically undercounting third world immigration: their official population is ~65 million, but their true population (estimated by grocery stores, waste management, healthcare utilization, etc) is almost certainly ~75 million. They literally estimate immigration by surveying random people at airports, even though they know that this massively undercounts the results. Of course nominal GDP goes up more than per capita metrics if you do this. And, of course, we all know why the government wants to put out official numbers which underestimate this kind of rampant unskilled immigration.
Are you suggesting that >10% of the UK is undocumented immigrants? That official stats are undercounting the non-white population by half?
It sounds crazy, but eg here are two threads which briefly summarize the case:
https://twitter.com/echetus/status/1682676824420253697
https://twitter.com/landofangle/status/1676722710540431363
& if you have exposure to how most govt numbers get produced—eg the US census bureau’s “differential privacy” insanity, or the way the Social Security Administration just makes up fertility rates for its projections, or the huge amounts of insane discretion in BEA GDP accounting—it starts to seem uncannily credible.
Things Weren’t Nearly This Bad In The 1970s?
I, an American on a rich Government grant, did my doctoral field work in British schools in the 70s.
The teachers were wonderfully patient and, whenever I would ask a headmaster how I could express my gratitude, she would suggest buying them dinner because, "They rarely eat meat nowadays”.
Are things that bad again?
They weren’t that bad then. That’s anecdotal evidence. As per the graph there wages grew about 30% in real terms.
GDP is not a particularly useful statistic. It's more useful to track the difference between per capita GDP and median income. That's roughly what people use to judge their own economic condition. People feel better when they're both growing at about the same rate. When the median falls behind, they feel cheated, and a lot of people feel cheated these days. This goes for the left and the right. They just blame different parties and offer different solutions.
England is in worse shape than most. It had a colonial empire which has its own resource curse. The money just rolled in, and, even now, London is a financial capital for sheltering gains extracted elsewhere. This has stunted the rest of its economy, and the economic reforms of the 1980s did nothing to improve the situation. Worse, England has a class system. If you didn't go to the right schools, good luck getting capital, good luck building a new industry. England had smart people and a technical lead. You could get some interesting insight by pondering why The City never pumped money into new domestic industries.
Re; disposable income part of the challenge is that there are different real purchasing-power-parity deflators for different purposes.
Back in 2008, most countries had a high price levels for GDP relative to GDP (https://i.imgur.com/5zEyPba.png) compared to the USA (after controlling for the exchange rate), and this was particularly the case for private consumption (https://i.imgur.com/5zEyPba.png).
By 2022, this has reduced markedly (https://i.imgur.com/iJBdMHx.png) for most countries; however less so for the English speaking countries outside the USA, and less for their levels of private consumption (https://i.imgur.com/qHnEXUV.png).
Compare the price level of private consumption in 2008 to 2022 for a basket of countries (https://i.imgur.com/qg8NfkC.png).
The UK also has a particularly high price level for non-discretionary spending, the "Cost of Living", hence the low figure for disposable income.
It's only when you get into the weeds of looking into the price levels of disposable income that you really see UK stagnation relative to OECD comparisons. GDP does tend to look a lot more normal.
And only when you look at this further in the context of an expanding levels of employment in the UK relative to peers that per capita disposable income stagnating means a reducing or at best stationary level of disposable income per worker.
You could alternatively look at consumption levels (rather than prices), and these do a bit better than disposable income growth... But that combines with an increase in household debt that makes them seem less than sustainable.
In general, the Tories have surprisingly actually been relatively successful in what they set out to do, which is that intended to reduce the cost of government and restrain its growth as a share of the economy, and get more people back into the workforce. (The price level of government spending is far lower than when they came to office, and lower than the USA).
But the larger failure is to encourage investment during the period of low interest rates, and to grow the economy per head. Particularly in the North, and areas outside London and the Southeast, whose decline offsets any growth in the SE. Privatization of utilities has generally failed to lead to sustainably competitive prices, and instead of investment, shareholders extract capital from privatized utilities that they purchased at relatively low prices.
The fear is that the opportunity to now increase investment and upgrade the technology base is now gone with the changes in the world interest rate environment, while we're left a nation with relatively high household debts and little ability to stretch further. There is also the fear that the Tories strategy of increasing employment and reducing the cost of government has now run completely into its limits of worsening public services and full employment with no more room to expand the economy that way. The concern is that the UK has become a low wage, high cost, high debt, low investment country and that any attempts to fix this would require major, serious expenditures that will push standards of living down further.
It's immigration.
Britain, partly because of political choices, and partly because it is English speaking, has been a magnet for cheap imported labour since 1997. This has allowed both public and private entities to run down infrastructure for 30 years while maintaining prosperity and what happens when you do that is that suddenly you are just really, really unproductive. Brexit, Ukraine and Covid brought the moment of reckoning forward, but the underlying reality is a country where nothing works because cheap labour has been papering over all the cracks.
It's true that the United States has a lot of immigration, but it also has the global reserve currency, and its overall quality of immigration is much better. The only other western country that has as much as Germany, but that started more recently and, anyway, they are also falling apart.
Big L for rationalist liberaltarian types.
According to a survey of macroeconomists:
> Most panellists think that Brexit remains the primary drag on the UK’s potential output this year. A small fraction cites poor labour force participation as a major constraint. Several panellists suggest public investments and R&D subsidies as a solution to boost UK GDP in the medium term. Most panellists believe a combination of policies would be the most effective way to achieve this objective.
https://cfmsurvey.org/surveys/causes-weak-long-run-uk-growth
Britain is an english speaking country. It collects good stats which are accessible to *anyone* in the world who speaks english. It gets analysed far more than anyone else and people can generally find what they are looking for in the numbers.
It has incredible challenges, not least a dysfunctional housing market, but it is not as crazy/bad as the commentary suggests
The feeling of decline in the UK is only partially captured by GDP figures, as it has a lot to do with the drop in the quality of public services. That said, the Mainly Macro post linked in the first paragraph correctly notes austerity and Brexit as the twin causes for the relative decline in GDP per capita. I would add the importance of financial services to the UK economy. The bubble in financial services in the years preceding the financial crisis inflated UK GDP figures up to 2008 and its collapse contributed to a fall in UK GDP in the period following the financial crisis.
I've tried to look into this issue of Britain's decline here: http://furtheroralternatively.blogspot.com/2023/08/why-i-am-reasonably-bullish-about.html . Sure, the UK could do better, but it's done ok for the last 30 years. There are reasons to be more positive.
Apologies for the thread necromancy, but this seems pretty important: https://news.sky.com/story/the-uk-actually-fared-much-better-after-covid-than-first-thought-heres-why-it-matters-12952220
The ONS (Office for National Statistics) has revised its estimates of the British economy upwards, and it turns out that, far from lagging at the bottom of the G7, the UK has been doing considerably better than Germany, and just a bit worse than France and Italy. Unless those countries also revise their economic estimates upwards, of course, which is perfectly possible.