Monday, 8 September 2014

This is what you want, this is what you get.

TUC General Secretary Frances O'Grady echoes Max Keiser's tirades only without wit or insight, from the BBC:

Ms O'Grady's speech to TUC delegates in Liverpool expanded on the annual conference's main theme of living standards.

She said: "Are we going to settle for a nastier and poorer Britain - a Downton Abbey-style society, in which the living standards of the vast majority are sacrificed to protect the high living of the well-to-do?

"We are piling yet more riches onto a privileged few. Economic growth is back but there's no sign of it in most workers' pay packets. In fact, the gap has got worse. Top chief executives now earn 175 times the wages of the average worker.

"Silver spoons are ever more firmly clamped in the mouths of those who were born with them. And under this government, class prejudice is becoming respectable once again."


She's missed the point about class prejudice, that was always there and cuts both ways.

Even worse, she's really missed the point with the whole 'silver spoon' thing.

As Max Keiser has pointed out, the real distinction is between the rentier class and the wealth creating class and the problem is that everybody aspires to be a rentier and looks down on wealth creators.

So people who bought their council house in London for a song, have since sold it at a massive profit and retired to Spain on the proceeds belong to the rentier class; the occasional entrepreneur like James Dyson, even if he is a bit posh, belongs to the wealth creating class.

Hugely overpaid corporate executives from whatever social background are rentiers; NHS surgeons from middle- or upper-class backgrounds count as wealth creators etc etc.

19 comments:

DBC Reed said...

Don't forget the greater part of what Picketty was doing was attacking the rentier class.

Bayard said...

"the real distinction is between the rentier class and the wealth creating class and the problem is that everybody aspires to be a rentier and looks down on wealth creators"

'Twas ever thus. I am just listening to "Barnaby Rudge" and have got to the bit where the slimy Mr Chester is telling his son that he can't marry the girl he loves because she isn't rich and that he needs to marry money because the Chesters are "of good family", (i.e. rentiers) and don't do anything as grubby as creating wealth (which the son, to give him credit, wants to do.)

Mark Wadsworth said...

DBC, well no, he missed the point and criticised "capitalism" generally and not "rent seeking" specifically.

B, it's all part of a long and fine literary tradition. Goes back to Robin Hood, whose alibi is that he himself was the son of a minor landowner. Had be been a common or garden landless peasant, then he would not exist.

Bayard said...

"Had be been a common or garden landless peasant, then he would not exist."

He probably was a landless peasant, but the legend-makers thought he'd sell better as a rentier's son, unfairly disinherited.

Mark Wadsworth said...

B, yes, that's sort of what I meant. It's all part of the Jesus-King Arthur-Robin Hood-Charles Dickens-Harry Potter template, the hero has to be somebody from a noble family who has somehow fallen on hard times and can play the underdog.

Bayard said...

To be fair to Dickens, he usually caricatures the rentier class in his novels.

Mark Wadsworth said...

B, maybe, but from what I can remember of the few I've read, the hero is usually a dispossessed rentier (as was Dickens himself I believe).

DBC Reed said...

@MW
Have you read Piketty all the way through? He is not criticising the capitalist system of production,just saying those who live off investments are getting ever richer while those making profits or working are falling behind.With a mass of statistics to prove it.

blissex said...

«So people who bought their council house in London for a song, have since sold it at a massive profit and retired to Spain»

That's one case, but the real big deal has been a bit different: people who did not sell their property, but kept remortgaging to cash their massive tax-free capital gains without actually selling it.

That, even more than Right-To-Buy, has been the genius of Thatcherism!

Because it has some huge advantages for the Tories:

* By allowing people to cash-in tax-free capital gains without selling to downsize, it keeps houses off the market and thus less downward pressure on prices.

* By increasing the sales of debt, it boosts the profits of the financial sector, which not only improves the chances of retiring to well paid directorships in the City, but boosts GDP.

http://www.opendemocracy.net/ourkingdom/oliver-huitson/thatcher-black-gold-or-red-bricks
«Another of Thatcher’s magic potions was ‘home equity withdrawal’ or remortgaging – drawing down the equity in the borrowers home for (mainly) consumption purposes – new cars, holidays, and so forth.
Under the two Prime Ministers that preceded her, James Callaghan and Ted Heath, home equity withdrawal as a percentage of GDP growth was around 36% for both.
Under Thatcher, this exploded to over £250bn across her premiership – a staggering 104% of GDP growth. [ ... ]
But Blair did his homework and let loose – as did Thatcher – a wave of cheap credit, financial deregulation, house price inflation and an equity withdrawal-led consumption boom.
Withdrawals under Blair’s leadership totalled around £365bn, that’s a full 103% of GDP growth over the same period,»

Also, the other vital detail is that "people" who take advantage of remortgaging are a well defined category who love to vote for Tories: most properties with large capital gains are owned by middle aged and older women in the South who are divorcees and widows.

Middle aged and older women often live alone in big properties bought 30-40-50 years ago and they got them mortgage free on divorce or death of their husband. Those divorcees and grannies are the real winners of 3-bedroom houses in Enfield having prices of £500,000.

And their heirs, unless the divorcees and grannies end up taking out all the equity with remortgages.

There are quite a few middle income, working class people in their 20s and 30s in the South East who are just waiting to inherit, thanks to often being only children, or even only children of only children, 2 to 4 houses in the £500,000 to £1,000,000 range from their grannies.


I personally know some people in their 20s and 30s in the South who have it even better: they stand to inherit 4-8 £500,000 to £2,000,000 properties because their parents and grandparents were middle or upper-middle class, professional income people, who not only bought their own 3-4 bedroom houses in places like Chiswick or St. Albans or Tunbridge in the 60s-70-80s, they also bought another 1-3 as investments.

blissex said...

«remortgaging to cash their massive tax-free capital gains without actually selling it.»

This has a fantastic multiplier effect, that has worked like this:

* One house in an estate is sold for £240,000 after having been bought for £120,000 10 years earlier.

* This instantly upgrades the market price against which a remortgage can be obtained to £240,000 for all similar houses in the estate.

* Therefore any or all of the other similar houses in the estate can be remortgaged without being sold; if their owners seeing the £240,000 price for their neighbour's house decided instead to sell, the market price for those houses would fall.

http://www.dailymail.co.uk/money/mortgageshome/article-2105240/Stuck-rent-trap-How-middle-class-family-kept-remortgaging-home-pay-bills-longer-afford-repayments.html
«Certainly, we overstretched ourselves when we bought our lovely period home for £419,000 in 2002. But with mortgage companies practically throwing loans at us in a rising property market, we slept soundly at night, smug in the knowledge the house was making us money. [ ... ]
The valuer had barely been in the house for five minutes yet we were able to borrow a further £80,000. [ ... ]
We were lulled into a false sense of security about our wealth. Whenever we overspent we just remortgaged without comprehending the consequences of taking yet more equity out of the property.
In our defence, we weren’t spending the money on expensive designer clothes, luxurious holidays or flash cars. Much of it was going on school fees and upkeep of the house.
By the beginning of 2008 we had remortgaged three times, taking out a staggering £500,000 loan on a house that wasn’t worth much more. Our interest-only mortgage payments had soared to nearly £3,000 a month.»

Mark Wadsworth said...

Blissex, yes, add all that to the list of Home-Owner-ist madness, but it's all just variations on a theme, whereby you make people poorer while tricking them into thinking they are richer.

Bayard said...

"Therefore any or all of the other similar houses in the estate can be remortgaged without being sold; if their owners seeing the £240,000 price for their neighbour's house decided instead to sell, the market price for those houses would fall"

Unlikely: past statistics show that an increase of supply of houses onto the market usually coincides with a rise in prices, not a fall. Even if everyone on the estate decided to sell at once, they would all be asking what they thought their houses were worth, i.e. £240,000. All that would happen is that they would take longer to sell than if only one or two were on the market at the same time. Even if some sellers got desperate and reduced their asking price for a quicker sale, it wouldn't affect the asking price of those houses where the sellers could afford to wait.

blissex said...

«past statistics show that an increase of supply of houses onto the market usually coincides with a rise in prices, not a fall.»

Looks like higher prices tempt more people to cash in...

But the statistics above have happened in a period where remortgages have been a very popular alternative to selling...

Anyhow, like all such discussions, the aggregate numbers need to be looked at by region and gender too

For region related data, this map shows large parts of the country with 10-20% prices falls:

http://www.telegraph.co.uk/finance/personalfinance/houseprices/10812771/House-price-heatmap-its-still-winter-in-the-regions.html

And in Stoke houses go for £1 (actually £30,000 refurbishment cost):

http://www.theguardian.com/society/2014/jan/29/one-pound-houses-stoke-on-trent-regeneration

«Even if some sellers got desperate and reduced their asking price for a quicker sale, it wouldn't affect the asking price of those houses where the sellers could afford to wait.»

That and the rest of the argument are the best advertisement yet for speculating on property: prices will never go down, cannot go down, because there are many people who will not sell unless prices are going up.

That is the house market never results in price reductions when there is low demand, because only the quantity offered adjust down...

Anyhow, my point was about *cashing in capital gains*, that is people wanting to cash in, with the sale being the means. If the asking price is too high and the sale does not happen there is no cash in.

The fabulous advantage of remortgages is that cashing in is guaranteed to happen at the asking price!

Because even if the sale would not happen at the valuation of £240,000 the bankers will be happy remortgage at that valuation.

Again a simple example...

Suppose that there are 10 similar houses on a street and one gets sold for £240,000 then all the other 9 could be remortgaged for £240,000 even if there would be only 2 more buyers willing to pay £240,000.

And since remortaging means that potentially none of the 9 remaning houses will be put on sale at £240,000 the demand from the 2 remaining buyers will remain unsatisfied pushing up prices long term.

This fabulous remortgage mechanism has been designed to allow people to cash in their capital gains without downsizing.

Which of course benefits the South and damages the North, because it means that middle aged and older property owning ladies in the South don't need to sell in St. Albans and move and buy in Hartlepool to cash in their massive capital gains.

blissex said...

«it's all just variations on a theme, whereby you make people poorer while tricking them into thinking they are richer.»

But it matters a great deal *which people*, especially because you make a connection between YPP and being anti property speculation.

My impression is that many young people are very happy about government policy pushing up property prices, because they stand to inherit at least 1 and often more of those properties from their grannies and their mothers.

The people who lose from the redistribution of income and wealth from rising property prices are instead those whose income depends more on their job and to whom property is a cost.

Overwhelmingly these are people in the North, all sorts of people in the North, because even Northern property owners have not much benefited from the enormous subsidies and protections which have been gifted to Southern property owners via remortgages at very low rates.

And in the South while the big winners from property speculation have been middle aged and older women, and the second biggest are their young heirs, the losers are largely divorced men (but non-divorced men too, as they are likely to die before their wives) and anybody who moved from the North to the South looking for a job, young or old.

And arguably knowing that the winnings of middle aged or older Southern women have come from remortgaging, their young Southern heirs might be made to realize that they are often going to inherit properties with little equity left in them. Or none: around half (or more) of mortgages are interest-only.

This might get them to demand from then government ever bigger property price increases, or might get them to realize that they have been screwed and lower property prices are in their interests too. The latter is less likely: having little or no equity in a property with a selling price lower than its remortgage is rather painful.

But overall remortgages are effectively guaranteed by the whole population, and therefore effectively Northern voters are promising to pay a share of any losses that Southern banks would have if Southern property prices were to fall.

It is not really young people, but largely Northern people (and Southern men) vs. Southern women and Southern young people.

Mark Wadsworth said...

Bl, yes, those are more excellent examples of the psychology of Home-Owner-Ism, thanks.

And yes, this is South v North and old v young and landowners v workers and businesses.

I'm not sure about women v men though, that might be going a bit far, unless you identify them as most likely to be swing voters?

blissex said...

«Bl, yes, those are more excellent examples of the psychology of Home-Owner-Ism, thanks.»

But it is not "psychology", it is naked greed and significant money interests.

For middle-income people in the South-East getting on top of their £14k-£16k yearly after tax income an extra £12k per year tax-free of property profits on their terraced 2-up-2-down is a very big deal. A VERY BIG DEAL. Not "psychology".

They are prepared to vote for decades the whole country into ruin as long as the Treasury and the Bank of England keep pushing up property prices at any cost *to everybody else* (Northernes, Scots, Welsh, men, ...).

«I'm not sure about women v men though, that might be going a bit far, unless you identify them as most likely to be swing voters?»

Well, according to most political strategists as voters women have two immense advantages:

* They consistently and significantly outnumber men, because younger men and women don't vote as much as older men and women, and because men to die a lot earlier than women, there are many more older women voters than men voters, especially in "older" towns. In particular working class men die much earlier because they tend to do exhausting stressful or dangerous jobs.

* Men voters tend to vote "tribally" or even geographically, rarely changing their vote even if their income or other circumstances fail; women tend to vote tactically for whichever party makes the best offer.

So in general women, especially middle aged and older property owning women in the South East, are the "swing voters" in *marginal seats* in the South East every party courts.

The Conservatives are very good at doing this. Almost every policy of cuts is targeted at Northern men, and almost every policy of boost is targeted at middle aged or older women.

There is also careful image management: David Cameron is PM and not George Osborne because his plummy "good boy" looks and demeanour are carefully calculated to appeal and feel trustworthy to middle aged and old widows and divorcees, while Osborne pinched, spivy looks don't go down well with Middle England's Home Counties women.

If one day soon Boris Johnson become PM is not just because he is actually very clever, insightful and a scrapper, but mostly because he is like catnip with his naughty-boyish looks but reassuring smooth workd to the property owning landladies of the Home Counties.

There is a quote that I often use that captures perfectly a slice of the argument, from the The Times, 2011-09-17, by Janice Turner:

«The C2 women who voted Conservative last time did so because they, in low to middling-paid roles such as nurses, secretaries and carers, believed welfare had grown too generous, that benefits rewarded the do-nothings while they toiled. They hoped the Tories would crack down.»

Note that these C2 women (property owners with secure government jobs in marginal seats in the SouthEast wanted a crackdown on nasty creepy men scrounging on the dole during the worst recession in 50 years, and they got it; while the Conversatives gave a triple-lock on pension payments where women typically retire 5 years before men and live on the pension dole for 5-15 years longer.

BTW as to the North-South some research institute made a series of map of the impact of cuts by country:

http://www.cpes.org.uk/dev/wp-content/uploads/2013/08/5-fothergill-Welfare-reform-Cambridge-talk.pdf

Mark Wadsworth said...

B, completely agreed to all of that and thanks for the examples.

"But it is not "psychology", it is naked greed and significant money interests."

Yes, but people dress up their naked greed as "a fair return on investment" and so on, Homeys are not conscious of the fact that they are perpetrating the biggest White Collar Crime in history.

That's what I mean by psychology. At least a drugs dealer knows he is breaking the law and most law abiding citizens think that drugs dealers are breaking the law.

(I'd legalise the stuff and let the markets decide, this is just an example).

blissex said...

BTW as to the «"a fair return on investment"», let's consider the rent aspect, and still only for the 2001-2011 period mentioned above; if one extends the period to 1991 to 2011 or 1981 to 2011 the points below are even bigger.

For a 2up-2down terrace house in the South East bought in 2001 for £120,000, with let's say a 25% Right-To-Buy discount, that is with a £90,000 mortgage.

In 2001 it was easy to get a mortgage with a 5-10% downpayment. Let's say a 10%, so £9000 down.

In 2011 that £9,000 down cash investment was generating a rent of around £9,000, for a yearly gross return of 100%. ONE HUNDRED PERCENT GROSS RETURN PER YEAR.

Putting in inflation, interest costs and house maintenance costs probably reduces it to a net return of around 50%. FIFTY PERCENT NET BEFORE TAX RETURN PER YEAR.

Notes:

* The above is just the return from rent; for total returns add the £12,000 capital gains per year.
* Some recent newspaper article report that some landladies get their rent largely cash in hand and forget to tell the Revenue.

That's the "fair return on investment" that divorced or widowed swing-voting women in the South East vote for. That's the "fair return on investment" that a lot of young people in the South East are eagerly expecting to inherit from their mothers and grandmothers, and are therefore demanding much higher inheritance tax thresholds and taxpayer (that is, renter or Northerner) funded care for their mothers and grandmothers.

While young people from the North who go South to find some job (often property or finance related, as the government heavily subsidizes them) live one or two to a room in a shared flat paying 40-50% of their salary, or 70% in London, for their rent.

Mark Wadsworth said...

B, yes, that is how it works. To those that have shall be given, and from those with nothing shall be taken.