WARNING: Musing on macro-trends ahead.
Dry wit emerges and casts into light an uncomfortable truth.
The UK is economically bollocksed.
It would seem we’re currently at an awkward crossroads, 30 years in the making, and leaders in the next five years will decide decades of future. How and why? In the (rose-tinted) view of the Industrial Revolution the UK built it’s economy on empire (slaves, colonies, stealing stuff), technology and cheap labour (workhouses). The lead was so striking that it took the first world war to knock us off our perch, and the following 50 years were one of loss of a century of economic lead punctuated by the second world war. (There’s an argument we’re still winning at global Civ via culture victory). Come the ’80s, Thatcher yanks the handbrake and powerslides us out of industrial-focus to financial-focus. Vis-a-vis the rise of London finance as the engine room of the British economy. If you’re outside of a 50 mile radius of London then you’re irrelevant, and your contribution to a productive economy was essentially on attentional tick-over. Just enough funds and support to keep going and maintain an attempt at a standard of living.
I was reading an Atlantic article that was arguing that Britain’s current nadir is resultant from the 2008 financial crisis, fear amongst the banks, the subsequent austerity policies, and the xenophobia which added fuel to the Brexit fire (1). I half agree, but I don’t think you can blame it all on that. I think it’s more about the people left behind outside of the M25. Without a positive vision for their future, those people looked to a past where their wages bought more and their (childhood) quality of life was better. Here’s a great cost-of-living post from r/CasualUK (2):
So that household is supported by a single individual’s pay. There’s a reasonable standard of living, even if some things are a stretch. How much of current consumerism improvements to people’s existence is masked by decreased prices on items around the home?
We’re not the only ones facing this economic change. The rest of Europe has it too, but it never quite de-industrialised/ centralised to the extent of post-Thatcher Britain, and never became so reliant on their own equivalents of London financial cash, so they don’t have so far to fall (3). The pivot to the World Bank of London has left millions of people in the provinces with less incentive for productivity, creating a generational attitude. I think that’s what Truss, Kwarteng et al are tapping into in their “Britain Unchained” booklet (4). Unfortunately they lay the fault at the foot of the individual, not the collective culture:
“The British are among the worst idlers in the world,” they wrote. “We work among the lowest hours, we retire early and our productivity is poor. Whereas Indian children aspire to be doctors or businessmen, the British are more interested in football and pop music.” (4)
Alright, complain about laziness, idleness, sloth and lack of productivity, but God forbid they actually explore the reasons why.
The engine room
We come back to productivity. The UK is no more productive now than it was 10 years ago (5, 6). COVID hasn’t helped, but it’s not like we were on a parabolic trajectory. Output per hour is increasing by factions of a percent (6):
Prior to 2008 productivity rose about 2% a year, and since then it’s stalled (7):
We’re living in a political culture of finger-pointing blame. Truss, Kwarteng et al seem to reckon it’s lazy people, not working long enough hours or hard enough (at what job I wonder?!), whilst the movement that fuelled Brexit pointed at foreigners either taking jobs or making political decisions. They’re all keen to say the problem is x or y’s fault, and therefore the solution is to target x or y. Hence Brexit. Hence Truss-onomics. In my work with people in therapy often a solution is not to focus on why or who is to blame, but where we are now and how we get out of it.
Truss’ idea about growth wasn’t necessarily wrong, but the methods via unfunded tax breaks and what essentially amounted to trickle-down economics were those of an idealistic undergraduate’s. They lacked a knowledge of the world outside of insulated belief. We’re probably in a recession, and a “doom-loop” of low-growth, low productivity, low investment (8).
Part of the proposed ongoing solution is to get more skilled people into work. Rich, skilled workers are retiring early, leaving a skills gap in the economy (9). That means you, FIRE advocate and believer. The government wants your skills back in work. Business leaders want your skills back in work (10).
Underlying this lots of people over 50 have left work since 2020, reversing a trend that held since the 1970s of people working longer (11). Those people can afford to. Skilled workers are richer (9). They have Defined Contribution pensions that have sat in the market for long periods, and now due to pension freedoms (short-term gain) they can do with that money as they wish. What they wish is retiring early. FIRE are the early achievers. 40 years ago a Defined Benefit pension usually meant working to a set age (or taking a trade off to retire early). You had to work, you had no choice. Now the choice is yours.
I actually lay part of the blame for this productivity issue at the feet of passive investments. I tried to read up on links between passive investment strategies and decreased productivity, but could find nothing macro. It all focused on dilution of company management and loss of productivity in individual companies, e.g. Forbes and the Atlantic (12, 13). My opinion is that the rise of passive investing has meant self-management of investments is easier, so more people do it, so more people are aware of how much they have and how they could retire. As the markets go up, so do people’s passive investments, providing them with the financial resources to retire. I can’t find anything on what happens when your baby boomer population bulge all retires early thanks to passive investments dependent on these decreasingly productive companies. Maybe that’s a bit too Burry/ Cassandra.
Back to the UK and our relaxed, retired, educated workers. Living their best lives now they’ve FIRE’d. How do you get them back in work?
A large stick
You remove the thing that enables them not to work. You strip out the economic insulation protecting your older workers. A cynic would argue you could do this by:
- Tanking the bond market that supports many retirement funds
- Tanking the property market that supports buy-to-let property prices and the ‘capital return’ on investment properties
- Pushing up interest rates such that mortgages on said buy-to-let or owned properties become difficult to pay without further gainful employment, whilst simultaneously removing tax and pro-BTL/property tax mechanisms.
I would argue that said cynic is attributing to strategy what could be attributed to stupidity and blind-luck. The result is the same. You force people back into work. That means you FIRE person.
You don’t have to do the above, it’s just the alternative means doing quite a bit of tearing down of current institutions. If you’re buddied up with those institutions and people that’s not palatable. It’s massive reform, switching from finance and old industrial manufacturing to tech/ green industries. It’s what the EU are doing via their COVID Recovery Fund (3). But it means ignoring the existing big manufacturing companies, and not focusing on the Bank of London. It’s not what the Tories are currently doing. It would mean ignoring a lot of their historic voter base. They seem to be doing a halfway house by encouraging and promoting productivity via technology without diverting the economy away from it’s previous path. I wonder how much of that is down to being wedded to the idea of the City of London being the engine of growth, and how much is down to being friends with people in the City of London. Individual company improvement in productivity through technology is wonderful; you get huge net margins from your software profits without huge overheads of staff/ space (14). It doesn’t solve the wider issue at a population level. There’s a quote in that original Atlantic article about how the UK now has 50% more hand car washes and 50% fewer automatic machine car washes than it did in 2003 (1). Low skilled workers are cheaper than robots.
The strongest expert voices seem to suggest investment in human capital and infrastructure (5). Train people to do more skilled work, and invest (privately or publicly) in the facilities and environment to do that. Not just the workplace, but transport, internet services, healthcare, the lot. The people can be imported, or trained locally through university/ training centre expansion (5). We are well-placed to do this in some sectors; the UK is a world leader in biotech, and was in renewable energy infrastructure. It’s just not a quick fix. These are long-term policies, with few short-term gains, and lots of cost. If you’ve got two years until an election is it something you would want to do?
September 2022 Finances
Checking the assets and liabilities:
These are taken, as always, from my Beast Budget spreadsheet. I saved 39% of my salary in September. Its turns out that my pay had been miscalculated for the past 7 months, meaning juicy backpay. MrsShrink is back full-time in work now, and splitting house bills plus childcare between two full-time salaries is easier. My net worth is still stumbling around the £100k mark, and all saving this month was into boring monthly savers to recoup our emergency fund. That’s now sitting around the £5.5k mark and inching up.
As compared to my four year back-calculated mean monthly spend:
- Groceries: August £317, September £234, budget £220 – Closer, and proving hard given current economic climates
- Eating out & Takeaway: Aug £129, Sept £93, budget £50
- Transport: Aug £170, Sept £220, budget £330
- Holiday: Aug £0, Sept £330, budget £40 – We had a trip away, and blew the saved holiday pot on nice food and fun activities. I use a Starling pot to put aside £25-50/month and this seems to work well psychologically
- Personal: Aug £62, Sept £75, budget £120
- Health: Aug £52, Sept £52, budget £150
- Misc: Aug £767, Sept £515, budget £215 – Nursery
- Work fees: Aug £160, Sept £130, budget £265
In the garden:
Harvested tomatoes, squash, some salad crops, and started tidying ahead of autumn.