The end of growth, the end of structural deficit?

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The end of growth, the end of structural deficit?

Post by madd0ct0r » 2014-12-07 01:48pm

So the UK Tories have announced another round of austerity, and the Lib-dems have deciced to put some distance from it before the election.

But it got me thinking.

One approach used to be that running a structural deficit is not a problem. You can acculmulate the debt with no intention of paying it off, but instead paying the holder's the interest each year. In affect, they are renting you the capital.
It works, but it requires you to grow your tax-receipts faster then you grow the amount you are repaying each year.

If growth is no longer something that can relied on, does that justify idealogical attacks on the welfare estate to bring the budget back out of deficit?
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Re: The end of growth, the end of structural deficit?

Post by Fingolfin_Noldor » 2014-12-07 02:13pm

The problems in the UK are because you guys have decided to make money out of moving money and making money out of money, and not a lot of that is taxed enough to fill the state's coffers.

Because you people cut back on material exports substantially, you guys have the structural deficit. If you want to deal with that, you have to go rework the economy, but at this stage, it is probably impossible since the major manufacturing countries have already eaten the pie.

Simply put, you guys have to confront the bankers at some point. But I don't foresee that ever happening.
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Re: The end of growth, the end of structural deficit?

Post by Starglider » 2014-12-07 02:31pm

Fingolfin_Noldor wrote:Simply put, you guys have to confront the bankers at some point. But I don't foresee that ever happening.
Confront them and do what exactly? It's much faster and easier to relocate finanical activity than manufacturing. London is a financial center due to a convenient timezone placement, relatively low regulation compared to the rest of Europe, and inertia. The current series of fines is effectively an additional tax and is being tolerated because it can be spun for good PR (lessons have been learned etc). However significant disproportional taxation in the UK will simply cause a relocation of taxable activity (on paper or actually moving staff and operations depending on how strict it is). Pervasive machine trading is actually making this even easier, in that expensive trading floors are obsolete and the people who program and monitor the co-located algo trading servers (in principle) can be at any global site. London is still a talent pool but you can always pay people extra to move offshore (money hungry quants and executives will usually say yes). All the less specialist back office stuff can go (and is going) to India.

As for UK manufacturing output, it has been on a bumpy but steady upward trend, just not as fast as the economy overall, which is why net imports have risen. The performance of the financial industry is mostly unrelated; bankers are not doing anything to hold manufacturing back, other than possibly outcompeting them for technical and executive staff. And if that is true it would be because UK manufacturing refuses to pay for talent. The UK does have inadequate venture capital investment compared to the US and China, but that is a cultural issue shared with most of Europe.

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Re: The end of growth, the end of structural deficit?

Post by Fingolfin_Noldor » 2014-12-07 05:10pm

Starglider wrote:
Fingolfin_Noldor wrote:Simply put, you guys have to confront the bankers at some point. But I don't foresee that ever happening.
Confront them and do what exactly? It's much faster and easier to relocate finanical activity than manufacturing. London is a financial center due to a convenient timezone placement, relatively low regulation compared to the rest of Europe, and inertia. The current series of fines is effectively an additional tax and is being tolerated because it can be spun for good PR (lessons have been learned etc). However significant disproportional taxation in the UK will simply cause a relocation of taxable activity (on paper or actually moving staff and operations depending on how strict it is). Pervasive machine trading is actually making this even easier, in that expensive trading floors are obsolete and the people who program and monitor the co-located algo trading servers (in principle) can be at any global site. London is still a talent pool but you can always pay people extra to move offshore (money hungry quants and executives will usually say yes). All the less specialist back office stuff can go (and is going) to India.
Well that's the thing. Which is why I doubt anything will happen. Which means the tax base will continue the shrink and unless you people figure how to tax the bankers, I would say it's better not to be poor in the UK. If the bankers have their way, there would be no welfare state and the UK would be just an immensely gentrified version of the US. As it is, the UK is steadily becoming some shrunk down version of New York State.
As for UK manufacturing output, it has been on a bumpy but steady upward trend, just not as fast as the economy overall, which is why net imports have risen. The performance of the financial industry is mostly unrelated; bankers are not doing anything to hold manufacturing back, other than possibly outcompeting them for technical and executive staff. And if that is true it would be because UK manufacturing refuses to pay for talent. The UK does have inadequate venture capital investment compared to the US and China, but that is a cultural issue shared with most of Europe.
UK manufacturing technology is probably so behind S. Korea, Japan, Germany in most areas that it might never catch up. That leaves niche areas but even those have tight competition.
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Re: The end of growth, the end of structural deficit?

Post by Guardsman Bass » 2014-12-11 09:44pm

If growth is no longer something that can relied on, does that justify idealogical attacks on the welfare estate to bring the budget back out of deficit?
If the debt doesn't have any sort of inflation-protection provisions, you could always reduce the debt burden somewhat by "monetizing" it (i.e. running a higher inflation rate and paying back the debt-holders with less valuable money). Most countries do a mild version of that if they're running with inflation in the 1-2% range.

As for "does it justify ideological attacks on the welfare state", no. You would just have to prioritize - is it more important that you be able to borrow cheaply in the future, or that you keep operating services? If worse comes to worst you could always do a partial or total default on your country's debt.
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Re: The end of growth, the end of structural deficit?

Post by K. A. Pital » 2014-12-12 01:33am

Starglider wrote:The UK does have inadequate venture capital investment compared to the US and China, but that is a cultural issue shared with most of Europe.
Inadequate investment leads to a technological gap between the UK and other developed nations, though, which further exacerbates the problem: why even invest in a sector that is shrinking and lagging behind the competitors?
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Re: The end of growth, the end of structural deficit?

Post by Starglider » 2014-12-12 02:02pm

Stas Bush wrote:
Starglider wrote:The UK does have inadequate venture capital investment compared to the US and China, but that is a cultural issue shared with most of Europe.
Inadequate investment leads to a technological gap between the UK and other developed nations, though, which further exacerbates the problem: why even invest in a sector that is shrinking and lagging behind the competitors?
Firstly, venture capitalists don't do the kind of investment you like, i.e. giant steel and chemical plants that employ thousands of unionised comrade jobsworths hamnering on bits of metal all day. Venture capitalists invest in startups and leveraged buyouts + turnarounds of medium sized companies, employing the kind of free-enterprise tech enthusuasts that you love to hate. So it is a non-sequitur for you to complaun about too little VC.

Secondly there is no 'technological gap' in terms of the available technology and skill base for new production. The UK is quite capable of state-of-the-art manufacturing, it just doesn't currently make financial sense vs cheaper wage countries, in a lot of cases. Obviously not in all cases as, as I just stated, UK manufacturing has been continuously growing (albeit at a modest pace).

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Re: The end of growth, the end of structural deficit?

Post by K. A. Pital » 2014-12-12 03:37pm

Starglider wrote:
Stas Bush wrote:
Starglider wrote:The UK does have inadequate venture capital investment compared to the US and China, but that is a cultural issue shared with most of Europe.
Inadequate investment leads to a technological gap between the UK and other developed nations, though, which further exacerbates the problem: why even invest in a sector that is shrinking and lagging behind the competitors?
Firstly, venture capitalists don't do the kind of investment you like, i.e. giant steel and chemical plants that employ thousands of unionised comrade jobsworths hamnering on bits of metal all day. Venture capitalists invest in startups and leveraged buyouts + turnarounds of medium sized companies, employing the kind of free-enterprise tech enthusuasts that you love to hate. So it is a non-sequitur for you to complaun about too little VC.

Secondly there is no 'technological gap' in terms of the available technology and skill base for new production. The UK is quite capable of state-of-the-art manufacturing, it just doesn't currently make financial sense vs cheaper wage countries, in a lot of cases. Obviously not in all cases as, as I just stated, UK manufacturing has been continuously growing (albeit at a modest pace).
Who exactly told you I like 'giant steel plants'? Xiaomi grew from a small company to the third largest smartphone maker. What do you have exactly?
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Re: The end of growth, the end of structural deficit?

Post by Starglider » 2014-12-12 06:02pm

Stas Bush wrote:Who exactly told you I like 'giant steel plants'?
Time series analysis of your SDN contributions; you are less openly Stalinist than you used to be, but that is still the bedrock beneath the transhumanist trappings.
Xiaomi grew from a small company to the third largest smartphone maker. What do you have exactly?
You are correct to say that I do not own a multinational technology company, but I'm pretty sure you're not Lei Jun, so I'm not sure what your point is.

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Re: The end of growth, the end of structural deficit?

Post by General Brock » 2014-12-12 10:33pm

Attacks on the corporate welfare state are probably justifiable. Odds are that's where any money from welfare cuts would be going.

I'm kind of suspecting the failure of the proposed alternative voting reforms to get anywhere will probably do more damage to Britain's competitiveness over time.

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Re: The end of growth, the end of structural deficit?

Post by K. A. Pital » 2014-12-13 04:47am

Starglider wrote:Time series analysis of your SDN contributions
The question is, however, what made you think that between new money (venture capitalists who invest in new technologies) and old money (capitalists which invest only in long-standing commodities and proven technology) I would choose the old ones? A transhumanist revolution is nowhere to be seen, neither a socialist one. So one has to choose between what we have now. And in these options, the choice is obviously in favor of newer technology, which is impossible without venture investments. I would say that a company like Google is much more useful to the cause I'm dedicated to than something like Halliburton or Royal Dutch Shell. Once again - what made you think the exact opposite?
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Re: The end of growth, the end of structural deficit?

Post by Zaune » 2014-12-13 10:42am

A couple of million "unionised comrade jobsworths", as you put it, would do more for the British economy than any number of high tech start-ups right now by virtue of creating some consumer demand. Hell, without consumer demand then why bother starting a business in the first place?
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Re: The end of growth, the end of structural deficit?

Post by NoXion » 2014-12-13 05:34pm

It strikes me that a more resilient and sustainable approach would involve both - unionised proles for the likes of Starglider to sneer at, as well as to provide a better consumer base that isn't entirely based on shitty service sector wage-slavery or ephemeral financial bullfuckery, and industries based on more cutting-edge or emerging technologies to provide a source of innovation and genuine technical competitiveness.

Doubt it'll happen though, because the red, blue and yellow conservatives in charge of the UK are more interested in filling their boots while they can.
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Re: The end of growth, the end of structural deficit?

Post by Welf » 2014-12-13 07:05pm

madd0ct0r wrote:So the UK Tories have announced another round of austerity, and the Lib-dems have deciced to put some distance from it before the election.

But it got me thinking.

One approach used to be that running a structural deficit is not a problem. You can acculmulate the debt with no intention of paying it off, but instead paying the holder's the interest each year. In affect, they are renting you the capital.
It works, but it requires you to grow your tax-receipts faster then you grow the amount you are repaying each year.

If growth is no longer something that can relied on, does that justify idealogical attacks on the welfare estate to bring the budget back out of deficit?
Structural deficits are bad, but debt is less of a problem than most people think. If a country borrows only from it's own citizens the wealth stays within a country. You only run into problems because you have to increase taxes more and more and that reduces incentives for people to actually work.
And it's not really a problem to have debt forever. Every publicly traded company does that. They either have debt from outsiders that they have to pay interest for, or they have equity that they have to pay yields for. In a perfect market that is the same, and highly traded government debt is getting close.
Starglider wrote:Confront them and do what exactly? It's much faster and easier to relocate finanical activity than manufacturing. London is a financial center due to a convenient timezone placement, relatively low regulation compared to the rest of Europe, and inertia. The current series of fines is effectively an additional tax and is being tolerated because it can be spun for good PR (lessons have been learned etc). However significant disproportional taxation in the UK will simply cause a relocation of taxable activity (on paper or actually moving staff and operations depending on how strict it is). Pervasive machine trading is actually making this even easier, in that expensive trading floors are obsolete and the people who program and monitor the co-located algo trading servers (in principle) can be at any global site.
Is it possible? You hear that argument a lot, but I doubt that is true. The western countries offer useful things like public security and rule of law.
Starglider wrote:London is still a talent pool but you can always pay people extra to move offshore (money hungry quants and executives will usually say yes). All the less specialist back office stuff can go (and is going) to India.
Nope. You would probably find a few, but the talent will stay away from those offshore sites. What would they do with their money there? A lot of financial companies tried moving away from New York for example, and it didn't work out because the best people they had left. And if the less specialist stuff can go to India, they already would have done it. There is still a quite major skill gap to overcome. Yes, there are a lot of very good techs, but less than cost savvy managers like to imagine.
Starglider wrote:As for UK manufacturing output, it has been on a bumpy but steady upward trend, just not as fast as the economy overall, which is why net imports have risen. The performance of the financial industry is mostly unrelated; bankers are not doing anything to hold manufacturing back, other than possibly outcompeting them for technical and executive staff. And if that is true it would be because UK manufacturing refuses to pay for talent. The UK does have inadequate venture capital investment compared to the US and China, but that is a cultural issue shared with most of Europe.
It very well holds back the manufacturing industry. If the most talented people go to one industry, there isn't much left for the rest. That's a pretty big structural issue that needs to be solved. In Germany the best developers go to car manufacturers and help making better cars, in the UK they go to hedge fonds and help make the financial system more unstable. They can pay higher wages, but those are not the result of actual productivity, but of excessive gambling and abusing implicit government guarantees.

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Re: The end of growth, the end of structural deficit?

Post by Bedlam » 2014-12-13 07:26pm

Nope. You would probably find a few, but the talent will stay away from those offshore sites. What would they do with their money there? A lot of financial companies tried moving away from New York for example, and it didn't work out because the best people they had left. And if the less specialist stuff can go to India, they already would have done it. There is still a quite major skill gap to overcome. Yes, there are a lot of very good techs, but less than cost savvy managers like to imagine.
I would agree with that, from the point of customer service for a financial company we offshored a lot of stuff about 5-6 years ago and then relocated the same work to the Philippians more recently and the quality they produce is terrible. It seems to be cultural but they are so risk adverse as to suffer from total paralysis unless there is someone standing behind them at all time telling them (or more importantly taking responsibility for) everything they do. They are mostly capable of dealing with things if an exact and precise process map can be provided but as soon as real life hits and some decision making or initiative is needed they go to pieces. You talk to the staff on an individual basis and they are smart people, but as soon as there's any chance of something going wrong they need constant hand holding.

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