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Why is eliminating 'the deficit' important? watch

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    (Original post by Luke Kostanjsek)
    We are protected by the law. The problem is that some Romanian bloke isn't going to report the dodgy work conditions to the government, because if they do that then the company has to pay more money for their workers, so they'll hire less workers. And as the conditions are still better than those he'd have if he was working in Romania, he'll take it.

    If we get rid of free movement, I doubt we'll all love unions but pay will certainly go up. British people aren't willing to work for *****y pay because they expect and demand more. But if you've been working in Lithuania for the past decade, then conditions that would be considered **** by us seem great to them.


    I'll deal with the union point later but just to focus on the immigration point for now.
    It is often stated and asserted by many that immigration reduces wages, yet there is no actual evidence for this. Studies have not shown this to be the case and when pushed for justification, the most common explanation as you've mentioned here is 'supply and demand'.

    However such an approach lacks nuance and treats economics like a science, which it is not. London, which has more immigration than anywhere else in the country has the highest wages. Norfolk which has virtually no immigration has one of the lowest.

    The reason that workers at places like Sports Direct are lowly paid is NOT because of immigration. It's because in a capitalist economy we have created incredibly low skilled work which can be done by anyone. If a job can be done by anyone of any age and any level of education it will be low paid. That will be the case whether or not we have immigration.

    Secondly there is the issue of automation. With automation becoming cheaper and cheaper, it means that if wages were to rise too high then companies would simply use machines rather than workers. Say it would cost McDonalds on average £8 an hour for a machines, then they are not going to pay a worker £10 an hour to do the same job.

    Neither have anything to do with immigration. Wages are low because of our economic system, yet the likes of the Mail, Express and Sun have managed to shift that blame on to immigrants.
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    (Original post by viddy9)
    Okay...

    I'm merely stating that the available evidence demonstrates what I've said above, and this has been documented. I have every right to declare others' ideas as false: are you a postmodernist or something? Also, how did you know I went to a state school? Also also, you've not actually made a rational argument. I take it you concede the points about interest rates on government debt and Greece?
    Regarding state school... when you know, you know.

    I concede that the case of Greece could/would not be possible in the UK. I concede that there other factors that influence the level of interest on gilts. However I do standby my point in a theoretical sense, because in terms of economic theory (perhaps not reality) it is true. And the main thing here is answering the question asked by the OP which I did in simple terms.
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    (Original post by political)
    Regarding state school... when you know, you know.

    I concede that the case of Greece could/would not be possible in the UK. I concede that there other factors that influence the level of interest on gilts. However I do standby my point in a theoretical sense, because in terms of economic theory (perhaps not reality) it is true. And the main thing here is answering the question asked by the OP which I did in simple terms.
    Fair enough. And I agree with your point about not letting repayments take up too much of the budget, as I indicated.
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    (Original post by viddy9)
    Fair enough. And I agree with your point about not letting repayments take up too much of the budget, as I indicated.
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    In the long run a persistent deficit is bad, it just leads to a larger and larger debt.

    However the most important thing is debt sustainability: with a growing economy, deficits will fall down and get back in to budget balance. When interest rate on government borrowing is low (because plenty of people are willing to lend) its not a major problem; when deficits rise to a point potential lenders think the government will go bankrupt so it's harder to borrow, interest rates rise and you get in a spiral where the higher rates make other lenders think it's even less likely that the government will repay so it can rapidly get out of hand.

    Then if a government has a deficit, that it can't cover through borrowing, it has a cash flow problem and needs to go to the IMF etc.

    However, the focus on deficit reduction from George Osborne/David Cameron was basically political. The UK was never in a debt sustainability crisis, interest rates were always low on UK government borrowing. It was a political attack because at the end of Labour's time in office, tax receipts had collapsed after the recession so the deficit rose very rapidly. It gave the Conservatives an opportunity to relentlessly talk about "deficit" as an argument for "Labour are bad".

    Most economists said that Osborne's focus on slashing the deficit in the face of flat growth was counterproductive and not good economics. But it was politics, not economics. Now the Conservatives have abandoned the deficit target, because they have other things to think about and also Labour are not a pressing problem at the moment.

    Which just makes a mockery of it - why was it THE most important thing not long ago, when in an uncertain time it was 'even more important to cut the deficit further', but now after Brexit they say because things are uncertain its not the right time to be focusing on cuts.
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    (Original post by Bornblue)
    I'll deal with the union point later but just to focus on the immigration point for now.
    It is often stated and asserted by many that immigration reduces wages, yet there is no actual evidence for this. Studies have not shown this to be the case and when pushed for justification, the most common explanation as you've mentioned here is 'supply and demand'.

    However such an approach lacks nuance and treats economics like a science, which it is not. London, which has more immigration than anywhere else in the country has the highest wages. Norfolk which has virtually no immigration has one of the lowest.

    The reason that workers at places like Sports Direct are lowly paid is NOT because of immigration. It's because in a capitalist economy we have created incredibly low skilled work which can be done by anyone. If a job can be done by anyone of any age and any level of education it will be low paid. That will be the case whether or not we have immigration.

    Secondly there is the issue of automation. With automation becoming cheaper and cheaper, it means that if wages were to rise too high then companies would simply use machines rather than workers. Say it would cost McDonalds on average £8 an hour for a machines, then they are not going to pay a worker £10 an hour to do the same job.

    Neither have anything to do with immigration. Wages are low because of our economic system, yet the likes of the Mail, Express and Sun have managed to shift that blame on to immigrants.
    Actually, the consensus from economic studies is that in times of stunted growth and recession, immigration lowers the wages of the bottom earners by around 5-10%. And the issue isn't strictly immigration anyways, as immigration from France of Germany would not have this effect. The issue is immigration from countries which have far worse working conditions and wages for the lowest income workers. They are the ones who, when they come to Britain in their droves, force down the wages because quite simply, they're willing to work for less.

    With the Sports Direct point, what you're missing is that if they could only employ Britons then wages would never drop that low, or working conditions that poor, because they'd just stop working there. If you're an immigrant though, you face deportation if you don't find a job. They'll take whatever they can get, especially given as what we would consider awful working conditions is comparitively pretty good for them. Why do you think factory jobs are dominated by immigrants from Eastern Europe?

    Certainly immigration isn't the whole story, and automation definitely plays a part (though I think the real impact of automation on jobs is yet to be felt, it's a few years away). But equally, it's hard to suggest that immigration has no effect on the wage floor.
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    (Original post by Luke Kostanjsek)
    That's an interesting way to look at the immediate postwar economy. By most accounts, Attlee's economic policy largely failed. Nationalisation was a bust; inefficiency was rife, which was made most apparent by severe coal shortages in the winter years of that Labour administration.

    And describing the 60s and 70s as 'Golden Years' is certainly debatable too. Successive governments were trapped trying to keep inflation down without snuffing out the already poor economic growth; the rate of growth was more or less half that of France of West Germany. The pound was plummeting, and the rampant inefficiencies within nationalised sectors were stifling the country. Sure, infrastructure projects kept unemployment low, but this was also in part due to the ridiculous power wielded by the unions.

    The real boom in Britain's economy came in the 1980s. Thatcher brought in sweeping monetarist policies which caused unemployment to rise, but also brought to an end the toxic cycle of inflation. By culling inefficient industries and promoting privatisation, she left Britain with a functioning, self-sufficient economic base that lead to a real boom in the mid-late 80s and very early 90s. It's telling that by the next time Labour would take power, they'd dropped their opposition to pretty much every economic policy Thatcher had advocated.
    As others have pointed out, quite a bizarre and selective account:
    - You castigate the postwar decades for "poor economic growth", yet praise the Thatcher years for at best similar if not slightly lower growth.
    - You skip over the early Thatcher years which saw the worst recession between the 1930s and 2008 with a simple "unemployment rose".
    - You completely skip over, and indeed almost seem to deny, the early 1990s recession that immediately followed Thatcher - again, worse than anything seen in the Golden Age decades.
    - You cite as evidence Labour's drift towards Thatcher-esque economics under New Labour, but don't apply the same standard to the Tories' acceptance of Labour's nationalisation, welfare state and state-directed economy policies in the 1950s and 1960s. Indeed, the latter is arguably a much stronger point, as the Tories were regularly in government throughout the period, and had ample opportunity to redefine the political landscape, whereas Labour's shift was in large part because they lacked such an opportunity.
    - Even on many of her own terms Thatcher failed. While inflation had seen record highs in the mid-1970s, it was actually declining when Thatcher came to power - and in her early period in office, inflation spiked. She did later bring it down - but to no lower than it had been in the 1950s and 1960s, and indeed high compared to the Blair years, before taking another spike towards the end of her premiership to levels unseen since. Indeed, Thatcher actually left office with inflation higher than when she entered it!
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    (Original post by Fenice)
    It's seems such a basic question but very few people seem to have clear answers and those that seem to understand the issue are split on whether it is or is not.
    The basic reason is because you are spending more than you have coming in on basic stuff. If we had a deficit only because we were building infrastructure that wouldn't be so much of an issue as it has a pay back further down the line of things being cheaper to run or making more money


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    (Original post by Luke Kostanjsek)
    Actually, the consensus from economic studies is that in times of stunted growth and recession, immigration lowers the wages of the bottom earners by around 5-10%. And the issue isn't strictly immigration anyways, as immigration from France of Germany would not have this effect. The issue is immigration from countries which have far worse working conditions and wages for the lowest income workers. They are the ones who, when they come to Britain in their droves, force down the wages because quite simply, they're willing to work for less.

    With the Sports Direct point, what you're missing is that if they could only employ Britons then wages would never drop that low, or working conditions that poor, because they'd just stop working there. If you're an immigrant though, you face deportation if you don't find a job. They'll take whatever they can get, especially given as what we would consider awful working conditions is comparitively pretty good for them. Why do you think factory jobs are dominated by immigrants from Eastern Europe?

    Certainly immigration isn't the whole story, and automation definitely plays a part (though I think the real impact of automation on jobs is yet to be felt, it's a few years away). But equally, it's hard to suggest that immigration has no effect on the wage floor.
    It doesn't make a difference if wages are down 5-10%.

    If you are doing a crap job at Sports Direct or Tescos for 5-10% more then goods and services are going to increase by 5-10% as well. The results is that poor British workers are no better off with or without immigrants if they are paying 5-10% for clothes and groceries.

    The only difference is that some exporters will either be forced to go out of business because they won't be able to absorb the costs or pass it onto a consumer without losing their custom.
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    (Original post by DorianGrayism)
    It doesn't make a difference if wages are down 5-10%.

    If you are doing a crap job at Sports Direct or Tescos for 5-10% more then goods and services are going to increase by 5-10% as well. The results is that poor British workers are no better off with or without immigrants if they are paying 5-10% for clothes and groceries.

    The only difference is that some exporters will either be forced to go out of business because they won't be able to absorb the costs or pass it onto a consumer without losing their custom.
    You're saying that if wages fall 5-10% that doesn't matter because the price of goods also falls by 5-10%? Well, that would make sense, if not for the fact we've seen nearly constant inflation in the years following the 2008 financial crash. Prices haven't been going down, they've been going up. In real terms, things are getting worse for those in the lowest income jobs, not better.
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    (Original post by Fenice)
    It's seems such a basic question but very few people seem to have clear answers and those that seem to understand the issue are split on whether it is or is not.
    Controlling our finances is important in terms of allowing the UK to continue borrowing sustainably and maintaining a low interest rate on the debt (assuming we don't go down the route of Japan and start buying our own debt on a massive scale).

    Strictly speaking though the actual nominal value of the deficit is unimportant, what is important is it's value as a percentage of GDP and that said value is below the rate of GDP growth each year (so that the debt falls as a percentage of GDP which also gives investors confidence that the UK can sustainably pay its debt over the 30 year lifetime of its bonds for example.

    Beyond that kind of 2% fiscal deficit figure, the importance is largely ideological. People like me who are fiscally conservative and are quite happy to cut spending elsewhere to pay for a new spending platform are naturally quite happy to run a surplus.

    I will say that most people are somewhat illiterate in their support or objection to spending and/or spending cuts. Not every pound spent or cut generates the same effect and so when people are arguing we need to spend more because of growth or not cut because of growth, they are often not actually speaking sense. My own belief is that current spending can be cut further and funds diverted towards a significant increase in capital spending (good GDP spending).

    (Original post by Bornblue)
    I think this is an incredibly selective post, ignoring the benefits and advantages of workers being protected by unions, while glossing over the huge inequalities caused by Thatcherism which exist today.

    I'll never understand why unions, representing the interests of ordinary workers so they cannot be exploited and undercut are seen in such a bad light by so many.

    Having an organization fighting for your pay and working rights and standards should be celebrated.
    Unions protect their own workers, not the country as a whole. Nobody credible can actually suggest that a tube driver is being exploited on £55k per year and yet unions will bring London to a halt next year for a new pay deal.

    Unions act as an oligopoly in the labour market. Now some oligopolies like Amazon can act in a positive manner but that does not mean they are not abusing their market power.

    I should probably add that unions as a whole are not bad things, indeed many make long term agreements with management in a similar vein to the German ethos. It is the militants (the French ethos) who are a problem.
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    (Original post by Bornblue)
    Was it a good thing?
    We now pretty much have 'agency Britain'. Due to the demise in unions, far more jobs are zero hour contracts. Far more jobs are lowly paid and insecure with bosses being able to sack workers at the drop of a hat.

    Just look at how Sports Direct treat their workers. And that's progress?
    Having strong unions which protect workers and ensure they cannot be treated like crap, exploited and undercut should be celebrated. I'd rather unions wield power than corporate fat cats.
    Your making the same mistake Miliband did in believing that the Guardian account of the UK represents it.

    There are certainly many problems but there are also plenty of full time jobs with reasonable pay.

    (Original post by ChaoticButterfly)
    Greece is what austerity looks like.
    Greece is what blanket (and stupid) austerity looks like.

    Nothing wrong with spending cuts but significant capital spending should have also occurred.
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    (Original post by Luke Kostanjsek)
    You're saying that if wages fall 5-10% that doesn't matter because the price of goods also falls by 5-10%? Well, that would make sense, if not for the fact we've seen nearly constant inflation in the years following the 2008 financial crash. Prices haven't been going down, they've been going up. In real terms, things are getting worse for those in the lowest income jobs, not better.
    No. I said if wages rise 5-10% then the price of goods will also rise 5-10% OR/AND a UK based company has to go out of business since their overheads are too high.

    That doesn't mean the opposite is true.

    Neither does it mean that wages are the only component of wages. There are other factors.
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    (Original post by DorianGrayism)
    No. I said if wages rise 5-10% then the price of goods will also rise 5-10% OR/AND a UK based company has to go out of business since their overheads are too high.

    That doesn't mean the opposite is true.

    Neither does it mean that wages are the only component of wages. There are other factors.
    Neither does it mean wages are the only component of cost you mean.....

    If wages rise 5% it's highly unlikely the cost does as that depends on what factor wages are in the price of an item


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    (Original post by paul514)
    Neither does it mean wages are the only component of cost you mean.....

    If wages rise 5% it's highly unlikely the cost does as that depends on what factor wages are in the price of an item


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    And that is why I specifically talked about low end jobs (IE Tescos and Sports direct.)
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    (Original post by Bornblue)
    Was it a good thing?
    We now pretty much have 'agency Britain'. Due to the demise in unions, far more jobs are zero hour contracts. Far more jobs are lowly paid and insecure with bosses being able to sack workers at the drop of a hat.

    Just look at how Sports Direct treat their workers. And that's progress?
    Having strong unions which protect workers and ensure they cannot be treated like crap, exploited and undercut should be celebrated. I'd rather unions wield power than corporate fat cats.
    Believe me when I say they take the piss, massively. I have been in the discussion rooms with them... they are every bit as feral as the stereotypes suggest. Today, they are totally unchecked.
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    (Original post by Bornblue)
    But any remotely left of centre policy is vilified as anti-aspirational, unless of course the tories offer it, see the introduction of 'the living wage'.

    Our economic system creates huge levels of disparity and inequality. The tabloid press who benefit from this system direct anger at immigrants, public sector workers, the welfare state, the EU etc in order to prevent people being angry at the system which is the real cause of their problems.

    And to even say something like this will make most people think you're a communsit, socialist, rich-hating idealist etc.

    Exactly, exactly. Well said. Why can't more people understand this?
 
 
 
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