What they don’t ask

“McWilliams asserted that the UK faces a decline in living standards of 25 per cent over the next 20 years or so because of wage competition from overseas: “we” are going to be 25 per cent worse off. I have no idea how plausible this is.{fn1}”

Pretty much nonsensical.

A 25% decline in absolute living standards? Pshaw!

A 25% decline in relative living standards? Entirely plausible, even desirable. This would mean convergence, the poorer countries/economies growing faster than the UK. Not just desirable in fact, something devoutly to be wished for.

I can’t see the iPlayer, being in foreign parts, but my assumption is that that’s what he’s talking about. Relative, not absolute, decline.

Considering many Americans can no longer afford to shop at Walmart , I think a 25% decline in absolute living standards for countries who’ve chosen to pursue neoconservative (neoliberal?) economic policies doesn’t seem out of the ballpark.

Is “relative living standards” even a thing? As in, my relative living standard has dropped this year because one billion Indians have got slightly richer? Is this something real economists talk about?

On the actual question, wouldn’t it be possible to combine economic growth with falling living standards if you assume, say, much higher energy prices?

China produces x thousand engineers per year, but has never produced a single decent TV gameshow
But srsly, has anywhere ever produced a decent TV gameshow? Successful, I grant you, but decent?

That can’t be a argument. The UK alread had some millions inhabitants in Ricardo’s time.

relative decline of living standards – doesn’t makes much sense.

The UK already had some millions inhabitants in Ricardo’s time.

So, it already wasn’t applicable in Ricardo’s time. It’s just a theoretical model that may or not (and probably won’t, in real life) result in a Nash equilibrium.

Chris,

‘Doug McWillians [sic] of the Centre for Economics and Business Research think tank (whoever they are)’

If you paid any attention to economics you’d know that CEBR is a well-known and AFAICT ‘highly respected’ economic forecaster.

And if you don’t there’s this thing called google.

Is it really so hard for you to produce a post that doesn’t sneer in passing at those you regard as your social and intellectual inferiors?

It also seems to me that CEBR could be doing one of two things:

1) Joining the neo-liberal chorus for whom ever more savage austerity programmes are the only solution to capitalism’s problems , or

2) Pointing out that deficits are less important than the structural problems in our economy which require massive investments in education (and training and research and development) if we are not to suffer a sharp relative decline in our standards of living over the long term.

(and I agree with Tim @ 1 that as McWilliams is not an economic illiterate he can only be talking of relative decline).

‘Left neoliberal’ (actually a very useful formulation) or not, surely it is better for us all – and particularly for all of you who suck on the teat of state -funded higher education – for a think tank or forecaster to push agenda (2) rather than agenda (1)?

>sharp relative decline in our standards of living over the long term.<
But nobody said anything baout relative decline. So it was absolute decline of living standards; and that means either a shrinking economy or a growing economy were most people don't profit. And CEBR may be "serious", but that question should be answered.

Chris,

Firstly if ‘whoever they are’ isn’t a sneer, what was it?

Secondly you did attack the ‘decent left’ in your last post.

However justified you feel your attack was you really can’t complain if one or two of the people you accuse of being part of the ‘epistemic environment’ that produced a particularly monstrous mass murderer saw it as a slander and defended their position.

And because you made your attack while they were still counting corpses I responded more emotionally than I should have done (I am an emotional guy made more so by having just spent too many hours trawling through the sub-Dostoevskyian hell of Breiviks ‘manifesto’).

But seriously what response did you expect?

If you are going to spend the rest of your life prosecuting this feud then you need to toughen up a bit and accept that occasionally someone will try and hit back.

And if they don’t how will you know that any of your blows have landed?

ejh @ 18

Those scare quotes around ‘highly respected’ were there for a reason.

I did at one point take all of the historical key indicators from the Treasury’s monthly digest of UK economic forecasts over IIRC 2005-9 and compared them to actual outcomes to see which if any forecaster had the best success rate.

FWIW although I lost the spreadsheet when I moved jobs I can’t remember CEBR being significantly worse than the others.

And on a brief skim of their recent releases I think I detect an undertone of criticism for the current neoliberal consensus – but as agencies like CEBR make all their money from selling their reports to businesses this has to be very muted and Aesopian indeed.

The UK economy as a whole will grow, but perhaps the circumstances of that growth will allow a minority to siphon off all the gains and then some, so that median income per hour worked goes down relative to cost of living. It’s more or less what’s been happening in the US over the last 30 years.

[aeiou] Jonathan at #28

I actually agree with you – in fact I’d estimate that there are rather more than 2,800 members of far left groupuscules and of course belonging to the SWP or whatever represents a vastly greater level of commitment than signing what amounts to an online petition.

And IMO it was a project that ‘failed’ (although it is difficult to think of any meaningful measurements of what might have constituted ‘success’) and therefore deserves serious and thoughtful criticism.

But Chris never does this – rather he picks on a monstrous and almost literally incomprehensible atrocity committed by a far rightist to score petty political points against fellow leftists by including them in the ‘spectrum’ of hate that produced him – and when called on whether this is altogether appropriate resorts to playground insults.

I find a 25% gdp decline implausible, if only for the reason that the kind of mechanism that could cause that would have no reason to stop there. Or indeed at any other particular point where you could still have people in offices tallying up the percentage, as opposed roaming a post-apocalyptic wasteland.

Now, as CB suggests, in the absence of politics, 25% household income decline, for a pretty large slice of households, would be perfectly compatible with moderate GPD growth.

But I suspect the correct interpretation to be looking at here is ‘gdp 25% lower than it would otherwise be’. If there is a national-level political problem that actually has an implementable solution, then presumably one or more current economic peers of the UK will implement it. Few would begrudge, say, Pakistan ‘catching up’ to the UK the way South Korea did. Rather more would be worried by, say, French people, becoming noticeably more prosperous on average than Britons. Especially when the best available explanation will be that their politicians made the correct call where UK ones got it wrong.

It goes without saying that The Man will try to stick it to the Common Man.
But when was it any different?

China’s comparative advantage is cheap labour.
Makes any other trade advantages it may enjoy look small by comparison.
An attempt to compete by cutting labour costs will, in the absence of other factors, end up a losing strategy. Which suggests that drawing an inference of swingeing “contraegalitarian redistribution” purely on the basis of this evidence would be an unwise thing to do, and attaching a 25% figure to it would invite ridicule.

The emphasis on improving training and skills acknowledges this, and rests on the assumption that a skilled workforce will be able to extract better terms from international capital. The problem with this is that a comparatively skilled, comparatively cheap workforce is at present India’s advantage relative to the developed West.

A better approach in the short term might be to secure our position in the value chain through the use of restrictive practices. If you devise a widely copied gameshow format, intellectual property law allows you to extract rent from it.
This approach offers us a better chance of paying our bills for the next few years than, for example, the Germans’ stereotypically unimaginative approach of making high-quality products that people will actually pay good money for.
___

I don’t want to pick on someone now deprived of any comeback. But less than a week before NewsCorp withdrew the BSkyB bid, Roger was confidently predicting it would be nodded through. Whichever epistemic community he belongs to, they’ll be unlikely to see him as an asset.

Britta, apparently they can’t even afford to shop at dollars stores anymore.
http://www.slate.com/id/2300828/

The disconnect between income growth amongst fairly middle income households and GDP or productivity growth.

…a disconnect between aggregate growth and household incomes even amongst those with previously reasonable levels of skills and education.

The incredible shrinking tree-house. Just when you think you’ve safely pulled up the ladder, you find yourself back on the ground

“wouldn’t it be possible to combine economic growth with falling living standards”

Of course it is possible. Through redistribution. And that is precisely what is happening. Granted GDP growth is slow at the moment but even slow growth shouldn’t lead to falling living standards absent redistribution. That is a simple arithmetic observation. Ok to be precise, we should be looking at per capita GDP. In the US, per capita GDP is somewhat lower than it was at its 2007 peak but the numeric difference cannot explain the drastic deterioration in the economic well-being of tens of millions of Americans. Only distributional effects can explain that.

Most economists seem to be taking it for granted that positive economic growth is required just to maintain current living standards but that implicitly assumes wealth concentration as a given. As economic growth in the developed world becomes a more and more unlikely prospect, attacking inequality will be the only viable strategy to maintain decent living standards for the masses.

“Ricardo’s little thought experiment might work for entities with a few thousand people each, but I don’t think it’s applicable to large entities like the UK, and, most certainly, China.”

Ricardo’s little thought experiment was based on assumptions that are not valid in today’s economy: it assumed immobility of labor and especially of capital. I think economists are in principle aware of this dirty little secret but they mostly prefer to not mention it. Any economists here who would disagree with that?

Did the link I am trying to post trigger any alerts?

“Wouldn’t the obvious way for a fall in living standards to be consistent with a rise in GDP be that input costs are going up relative to wages?”

But rising input costs – inflation – are supposed to be accounted for in real GDP accounting.

The fall in living standards over the last couple of years seems to be unevenly distributed, both at the individual and probably the regional level. Looking around at all the people I know who have lost their jobs, and the businesses that have closed down, it’s easy to identify many families that have taken a bigger than 25% loss already.

However, at a very rough guess of the mean fall where I live, it’s nothing like 25% yet.

Emotionally (if not mathematically/economically) it’s easy to imagine the mean fall reaching 25% just by a increase in the proportion of the population that has taken a big cut. Particularly as there’s positive feedback visibly in operation: increased unemployment causes reduced spending, which causes more businesses to fail, which causes more unemployment. (Yes, sure, there’s no particular reason for the positive feedback to stop at just 25%).

In the UK, the heads of University departments I’ve spoken to are pretty concerned about the upcoming changes in student funding (like, it’s the first thing that comes up in conversation even if you’re really there to talk about something else.). Such that a 25% fall in total student numbers wouldn’t be unexpected. And if that happens, either the qualification requirements for what are now graduate jobs go down, or the number of people going into that class of job goes down.

If this happens (and here’s hoping not!) I presume it would be a fall to both GDP and living standards.

Wouldn’t the obvious way for a fall in living standards to be consistent with a rise in GDP be that input costs are going up relative to wages? (So, for example, the quadrupling of oil prices since 1999 is makes a dollar of oil—a GDP measure—consistent with only 25% as much driving—a living standards measure.)

Possibly, insofar as oil has a larger weight in the consumption basket than in GDP as a whole. Health care is another, possibly bigger, factor here. The divergence between the CPI and similar measures on the one hand, and GDP on the other, doesn’t get as much attention as it should in these discussions. This is one area where Marxists do better, thanks to Marx’s focus on the relative price of wage goods. It’s an interesting fact that in recent expansions, while real wages have not risen any faster than GDP, the relative price of wage goods gas accelerated, so the wage share has risen.