Professional Documents
Culture Documents
The challenge
Potential actions
Likely outcomes
Page 2
Real GDP per capita (1992 = 100) 550 520 490 460 430 400 370 340 310 280 250 220 190 160 130 100 70
1992
1994
1996
1998
2000
2002
2004
2006
2008
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2010
20
40
60
There are many competing explanations, some more persuasive than others:
5-Year CDS of Eurozone countries vs. percentage of men living with parents
3500
Greece 3000 2500 2000 1500 Portugal 1000 500 0 0 Finland Ireland Italy France Belgium Germany Netherlands 10 20 30 Austria 40 50 60 R2 = 0.75282 Spain
% of men aged 25-34 living with parents Source: EuroStat, Bloomberg, via Boaz Weinstein, Saba Capital.
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2%
Negative
3%
Negative
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The challenge
Potential actions
Likely outcomes
Entitled groups
Page 6
The global wage disparity, potentiated by the global adoption of capitalism, is driving an unprecedented loss of wealth and growth for the Western economies.
Wage disparities between OECD and emerging countries result in an almost insuperable competitive advantage for the East*.
The jobs drained are not returning; rather, more will be lost.
With no job supply, i.e. less demand for labour, wages in the OECD must inevitably fall.
Page 7
This jobs drain is taking place, driven by the wage disparities that exist between West and East:
Advanced Economies1 Developing Economies (urban)2 1.1 billion
Labour pool
500 million
$1-2?
Alarmist worries about this were dismissed as overblown, even as many millions of jobs migrated (indeed continue to migrate) from OECD to Third World 1995-2011.
Sources: 1 OECD; 2 Estimated: UN World Urbanization Prospects, 15-64 year olds, assuming 65% LFPR.
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The global wage disparity, potentiated by the global adoption of capitalism, is driving an unprecedented loss of wealth and growth for the Western economies.
Wage disparities between OECD and emerging countries result in an almost insuperable competitive advantage for the East.
The jobs drained are not returning; rather, more will be lost.
With no job supply, i.e. less demand for labour, wages in the OECD must inevitably fall.
Page 9
Since globalisation began in earnest in the 1990s, OECD economies have, despite government stimulus policies, been unable to sustain rates of job growth:
Total employment (1983=100) Europe
160 150 140 130 120 110 160 150 140 130 120 110
USA
100 100 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 Source: OECD
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The last decade was the first decade since the Great Depression to see no net job creation in the US:
US job growth by decade, 1940s 2000s
% change in non-farm payroll employment (%) 45 40
1940s, 37.7%
35 30 25 20 15 10
1
1960s, 31.1% 1970s, 27.6% 1950s, 24.7% 1980s, 20.2% 1990s, 19.8%
2.5
1.5
5 0 -5 0 1 2 3 4 5 6 Year in decade 7 8 9
2000s, -1.1%
0.5
10
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Wages have increased for those with the most education, while falling for those with the least:
Graduate school
College graduate
Source: Acemoglu and Autor (MIT), Skills, Tasks and Technologies: Implications for Employment and Earnings (2010).
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In 1955, the biggest company in the world by value was GM (revenues: $105bn).* Today it is Apple (revenues: $108bn). Employment patterns have, however, changed somewhat:
US employees 800000 700000 600000 500000 400000 300000 200000 100000 0 GM 1955
* At 2011 prices. At 1955 prices, revenues were $12.5bn.
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Overseas employees
Overseas contractors
Apple 2012
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The US labour market is the most flexible in the world. Unlike in previous recessions, it looks as if lots of these jobs are not coming back:
Percent job losses in US recessions 1 0 -1 -2 -3 -4 -5 -6 -7 9 million jobs lost
1 2 3
1974
1980
1981
1990
2001
2007
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Whole industries the ones the West was built on are disappearing to the East:
Crude steel production (megatons)
China 800000 700000 600000 500000 400000 300000 200000 100000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 USA Europe
2008
2009
Page 15
2010
2011
Whole industries the ones the West was built on are disappearing to the East:
The commodity car industry is going the same way. Luxury cars will take slightly longer:
Car production
USA 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 Japan Europe China
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
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2010
With each stage of advancement up the industrial ladder in the East, there is a corresponding jobs drain from the West: The industrial development cycle: from delivery to creation
Low education Low capital investment Low know-how
Light manufacturing Assembly
Professional services
Financial services Legal Accounting
Enablers of advancement:
Education
Page 17
The global wage disparity, potentiated by the global adoption of capitalism, is driving an unprecedented loss of wealth and growth for the Western economies.
Wage disparities between OECD and emerging countries result in an almost insuperable competitive advantage for the East.
The jobs drained are not returning; rather, more will be lost.
With no job supply, i.e. less demand for labour, wages in the OECD must inevitably fall.
Page 18
At the same time, our own competitive advantages are steadily crumbling:
Competitive wage rates Existing physical and intellectual capital base Barriers that could prevent job loss from the West to the East Propensity to invest new capital Encouragement of VCs and entrepreneurs Existing IP Ability to generate IP
Page 19
China has been investing almost half its GDP, while the West barely invests a fifth:
Gross capital formation (% of GDP)
60 50 40 30 20 10 0 1970 China 1975 1980 United Kingdom 1985 1990 1995 2000
2005
2010
United States
Page 20
Hongqiao
PA Knowledge Limited 2012
Kings Cross
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Competitive wage rates Existing physical and intellectual capital base Barriers that could prevent job loss from the West to the East Propensity to invest new capital Encouragement of VCs and entrepreneurs Existing IP Ability to generate IP
Page 22
zhf gungrng Deng Xiaoping, Former Leader of the Peoples Republic of China
Page 23
Competitive wage rates Existing physical and intellectual capital base Barriers that could prevent job loss from the West to the East Propensity to invest new capital Encouragement of VCs and entrepreneurs Existing IP Ability to generate IP
Unfeasible Half-life is some 10-15 years Vanishing Western hostility to high earners
Page 24
The West has been haemorrhaging intellectual property, with little sign of abatement:
Global value of counterfeit and pirated goods (2015): $1.5 trillion Known jobs lost due to counterfeiting and piracy: 2.5 million.
Source: Frontier Economics, Estimating the global economic and social impacts of counterfeiting and piracy (Feb 2011)
The Chinese government has a national policy of economic espionage in cyberspace Although a rigorous assessment has not been done, we think it is safe to say [this] easily means billions of dollars and millions of jobs.
Source: Mike McConnell, Director of National Intelligence (2007-09), Michael Chertoff, Secretary of Homeland Security (2005-09), William Lynn, Deputy Secretary of Defense (2009-11), Wall Street Journal (Jan 27 2012)
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Competitive wage rates Existing physical and intellectual capital base Barriers that could prevent job loss from the West to the East Propensity to invest new capital Encouragement of VCs and entrepreneurs Existing IP Ability to generate IP
Unfeasible Half-life is some 10-15 years Vanishing Western hostility to high earners Cyber and physical theft
Page 26
Percentage of students who do not attain the essential reading skills needed to participate productively in society
30 25 20 15 10 5 0
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The Chinese take advantage of the best education in the West: 1978 - 2007
Number of Chinese students studying abroad
160000 140000 120000 100000 80000 60000 40000 20000 1978 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 0
1978
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Source: National Bureau of Statistics of China, 2009; Tina Hsieh and Ershad Ali, Auckland Institute of Studies.
When our thousands of Chinese students abroad return home, you will see how China will transform itself.
Deng Xiaoping, Former Leader of the Peoples Republic of China
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2007
50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0
Chinas universities graduate more than 10,000 science PhDs each year.
Source: World Intellectual Property Organization, McKinsey Quarterly.
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Competitive wage rates Existing physical and intellectual capital base Barriers that could prevent job loss from the West to the East Propensity to invest new capital Encouragement of VCs and entrepreneurs Existing IP Ability to generate IP
Unfeasible Half-life is some 10-15 years Vanishing Western hostility to high earners Cyber and physical theft Collapsing education set-up
Page 30
The global wage disparity, potentiated by the global adoption of capitalism, is driving an unprecedented loss of wealth and growth for the Western economies.
Wage disparities between OECD and emerging countries result in an almost insuperable competitive advantage for the East.
The jobs drained are not returning; rather, more will be lost.
With no job supply, i.e. less demand for labour, wages in the OECD must inevitably fall.
Page 31
In the West, average wages have plummeted - from 3% real annual increases to 3% real annual declines:
Average annual growth rates of real average wages 4 3 2 1 0 -1 -2 -3 -4
United States United Kingdom
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1995-2000
2001-07
2008-10
2011
Precisely as one would expect, it is the low- and medium-skilled workers who are losing out, while the most skilled retain their comparative advantage:
Annual percentage change in nominal weekly pay in UK by pay percentile
2010
2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 10 20 30 40 50 60 70 80 90 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 10 20 30 40 50 60 70 80 90
2011
Note that inflation in the UK has been 5%, so wages are in fact plummeting.
Source: Annual Survey of Hours and Earnings (2009, 2010, 2011) UK Office for National Statistics.
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We have every reason to think the trend will continue, leading to enormous downward adjustment, disruption and dislocation for Western workers:
2010 2020? Equilibrium price 2025*
Beyond that?
? ?
$2-12 $20
Inflation and currency collapse seem to be the most likely ways by which this process will be managed in the medium term
* Assumes annual world GDP growth rate of 5%; constant prices.
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The challenge
Potential actions
Likely outcomes
Entitled groups
Starting with the Greenspan Put (1987), governments, corporates and individuals have sought to borrow to fund the maintenance of an unmaintainable lifestyle.
Page 35
Ineffectual governments
Since 1987, the response to any economic downturn has been to flood the system with cheap money:
Fed Rate
25
20
15
10
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36
Ineffectual governments
For todays Keynesians, there seems never to be a good time to run a surplus:
Surpluses and deficits (% GDP)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Japan United Kingdom United States
Page 37
Euro area
Source: OECD.
The result of low interest rates (easy money) and government deficits is staggering levels of debt:
Total debt in selected countries around the world as percent of GDP
Households Ireland Japan Portugal United Kingdom Spain Greece France United States Italy Germany 0% Nonfinancial business Government Financial Institutions
Ineffectual governments
100%
200%
300%
400%
500%
600%
700%
Source: McKinsey Global Institute (MGI), "Debt and deleveraging: Uneven progress on the path to growth," January 2012.
The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more.
Reinhart and Rogoff, Growth in a Time of Debt, American Economic Review (May 2010)
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Ineffectual governments
Ineffectual governments
Page 40
The problems are exacerbated by the claims made on shrinking Western economies by an oddly disparate set of entitled groups:
Entitled groups
The challenge
Potential actions
Likely outcomes
Entitled groups
Bankers
CEOs
Public sector
Benefit claimants
Page 41
The problems are exacerbated by the claims made on shrinking Western economies by an oddly disparate set of entitled groups:
Bankers sources of excess profits (that also lead to massive socialised losses)
Cheap funding from government stimulus Oligopoly in many markets (corporate lending, mortgages, credit cards) Foolish acceptance of high prices by customers where oligopoly does not exist Excessive leverage Inside trading knowledge Big bet culture Willingness of boards and shareholders to countenance excessive rewards, in particular, because the previous points create excessive profits
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Bankers
Source: Bureau of Economic Analysis (BEA) data on National Income and Product Accounts (NIPA), tables 1.1.5 and 1.1.4.
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Bankers
30%
20%
10%
0% 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Source: Philippon and Reshef, Wages and Human Capital in the U.S. Financial Industry: 1909-2006 (2008).
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The problems are exacerbated by the claims made on shrinking Western economies by an oddly disparate set of entitled groups:
Entitled groups
The challenge
Potential actions
Likely outcomes
Entitled groups
Bankers
CEOs
Public sector
Benefit claimants
Page 45
CEOs in the US and the UK have also captured their companies remuneration processes:
CEOs
299-to-1
277-to-1 243-to-1
185-to-1
Rectifying this would be important to ensure a cohesive society, but the impact will be limited (too few CEOs).
Source: Adapted from Lawrence Mishel and Josh Bivens, Economic Policy Institute Briefing Paper #331 (2011).
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The problems are exacerbated by the claims made on shrinking Western economies by an oddly disparate set of entitled groups:
Entitled groups
The challenge
Potential actions
Likely outcomes
Entitled groups
Bankers
CEOs
Public sector
Benefit claimants
Page 47
With the exception of the highest skilled, public sector workers are significantly overpaid:
Average public/private sector pay gap by qualification
% Pay gap (public minus private sector) UK US (excluding pensions) (including pensions) 40 30 20 10 0 -10 -20 -30
No qual. Other qual. GCSE A-C A-Level Higher ed. Degree High School Diploma Some college Bachelor's degree Master's degree Prof. degree or PhD
Public sector
The governments own conclusion: Allowing for [job] differences as far as possible, in April 2010, public sector employees were paid on average 7.8 per cent more than private sector employees. Source: ONS.
8 6 4 2 0 -2 -4 -6 -8
NB: UK analysis excludes pension contributions, so greatly understates the already large pay gap (private sector companies mostly no longer have DB schemes).
Source: ONS, Estimating differences in public and private sector pay (July 2011); CBO, Comparing the compensation of federal and private-sector employees (Jan 2012).
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Public sector workers are also getting less productive, while the private sector company necessarily finds improvements, or closes down. Thus the public sector is becoming a heavier and heavier drag on the public purse: Annual growth in productivity in the UK (1997 = 100)
Private Sector 130 125 120 115 110 105 100 95 90 1997 1998 1999 2000 2001 2002 2003 2004 2005 Public Sector
Public sector
2006
2007
Source: ONS, Estimating differences in public and private sector pay (July 2011).
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The problems are exacerbated by the claims made on shrinking Western economies by an oddly disparate set of entitled groups:
Entitled groups
The challenge
Potential actions
Likely outcomes
Entitled groups
Bankers
CEOs
Public sector
Benefit claimants
Page 50
Benefit claimants
Social Security
Page 51
GDP
Under Blair and Brown, spending on benefits should have fallen as the economy boomed. It didnt becoming a redistribution rather than a safety net.
UK welfare spending and unemployment 1974 - 2011
14.5 13.5 12.5 11.5
Benefit claimants
10.5 9.5 8.5 7.5 6.5 5.5 6.0 Unemployment rate 4.0 (%, RHS) 2.0 0.0
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Benefit claimants
Job Seeker
Lone Parent
Carer
Disabled
Bereaved
3-6 months
6-12 months
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The cost is exacerbated by the large amount of money spent on those not in need, as the state seeks to develop a dependency mentality in its clients:
Benefit claimants
With universal suffrage, it becomes impossibly expensive to bribe all of the electorate.
Retirement pension
Housing benefit
Student support
Benefit claimants
The challenge
Potential actions
Likely outcomes
Entitled groups
Page 56
Since 1992, spending on health has ballooned (mostly on salaries), while growth in education spending has fallen behind:
UK public spending (real bn)
140.0 NHS
Poor allocation
Education
CAG: 4.89%
120.0 100.0 80.0 60.0 40.0 20.0 0.0 1953-54 1958-59 1963-64 1968-69 1973-74 1978-79 1983-84 1988-89 1993-94 1998-99 2003-04 2008-09 Source: ONS. Compound annual growth calculated from crossover point (1993).
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CAG: 3.14%
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The challenge
Potential actions
Likely outcomes
Tax properly
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Potential actions
Tax properly
Education Infrastructure
Page 59
Reallocating public spending towards infrastructure and education has a large and highly statistically significant effect on the long-run growth rate.
Effect of public spending mix on the long-run growth rate
0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 -0.02 -0.04 -0.06 Transp & Comms Education Health Defence Econ services Housing Gen. pub. services Education and infrastructure the key
Reorient spending
Welfare
Source: Gemmell, N., Kneller, R. and I. Sanz, The Composition of Government Expenditure and Economic Growth: Some Evidence from OECD Countries, European Economy (2008).
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Reorient spending
Percentage of new American teachers who graduated in the upper third of their classes 100 90 80 70 60 50 40 30 20 10 0 1930
Source: McKinsey & Company, Closing the talent gap (2010); Milken Institute.
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2012
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The strongest performers among high-income countries tend to invest more in teachers:
545 540 535 Mean reading scores 530 525 520 515 510 505 500 495 0 R = 0.61227
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Reorient spending
Korea Finland
OECD analysis
In general, the countries that perform well in PISA attract the best students into the teaching profession by offering them higher salaries and greater professional status. High-performing countries tend to prioritise investment in teachers over smaller classes.
2.5 Source: OECD Does Money Buy Strong Performance in PISA?
Japan Australia Netherlands Belgium Norway Poland Estonia Iceland United States 0.5 1 1.5 2 Ratio of teacher salaries to GDP per capita
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Reorient spending
$0 40th percentile teacher -$500,000 25th percentile teacher 10th percentile teacher -$1,000,000 Class size
Source: Raj Chetty (Harvard), John N. Friedman (HKS), and Jonah E. Rockoff (Columbia), The Long-Term Impacts of Teachers: Teacher Value-Added and Student Outcomes in Adulthood, NBER Working Paper No. 17699 (Jan 2012).
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Reorient spending
A teacher one standard deviation above the mean effectiveness annually generates marginal gains of over $400,000 in present value of student future earnings with a class size of 20 and proportionately higher with larger class sizes. Alternatively, replacing the bottom 5-8 percent of teachers with average teachers could move the U.S. near the top of international math and science rankings with a present value of $100 trillion.
Source: Eric A. Hanushek (Stanford), The Economic Value of Higher Teacher Quality, NBER Working Paper No. 16606 (Dec 2010).
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Reorient spending
Replacing a teacher whose value added is in the bottom 5% with an average teacher would increase the present value of students lifetime income by more than $250,000 for the average classroom.
Source: Raj Chetty (Harvard), John N. Friedman (HKS), and Jonah E. Rockoff (Columbia), The Long-Term Impacts of Teachers: Teacher Value-Added and Student Outcomes in Adulthood, NBER Working Paper No. 17699 (Jan 2012).
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Reorient spending
With an annual discount rate of 5%, the parents of a classroom of average size should be willing to pool resources and pay an 84th percentile teacher considering quitting approximately $130,000 ($4,600 per parent) to stay and teach their children during the next school year.
Source: Raj Chetty (Harvard), John N. Friedman (HKS), and Jonah E. Rockoff (Columbia), The Long-Term Impacts of Teachers: Teacher Value-Added and Student Outcomes in Adulthood, NBER Working Paper No. 17699 (Jan 2012).
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Potential actions
Tax properly
Education Infrastructure
Page 67
Reorient spending
A nil
B nil
C Solid waste (+) Bridges Public parks and recreation (-) Rail (-)
D Energy (+) Aviation Dams Hazardous waste Schools Transit Drinking water (-) Inland waterways (-) Levees (-) Roads (-) Wastewater (-)
Manchester-Sheffield motorway Other removal of congestion through building new roads and improving efficiency of existing roads Local bypasses
Boris Island
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Potential actions
Tax properly
Page 69
The multiple ways in which banks make excess profits, and how that might be reversed:
Cheap funding from government stimulus Oligopoly in many markets (corporate lending, mortgages, credit cards) Foolish acceptance of high prices and risk by customers even where oligopoly does not exist Get customers to behave better and think harder (for retail) Educate the populace and force far more, and better disclosure
Excessive leverage*
Excessive remuneration
Make them pay for that through tax, levies, ringfencing bonuses
Break them up
Require more capital Ban abuse of derivatives: better regulation Prevent concealment of true size of assets; punish auditors for allowing OBS vehicles Prevent other arbitrage of capital regulation Manage ratings agencies better Eliminate politically biased decision making Manage auditors better
Manage regulators better Split commercial from trading; dont subsidise trading/ investment banking Remove profit element of subsidies Remove too big to fail
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Potential actions
Tax properly
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Tax properly
Labour utilisation
Employment
Taxes
Consumption Property Income Corporate
Hours worked
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Tax properly
Consumption taxes
Property taxes
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Potential actions
Tax properly
Support manufacturing
Page 74
Consensus states that manufacturing is no more important than any other sector of the economy:
Manufacturing
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Manufacturing
Primary source of middle-class jobs (especially for workers without a college degree - 75% of UK workforce)
Its also vital that we rebalance growth away from consumption and imports financed by foreign borrowing toward exports.
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Manufacturing
7 6 5 4 3 2 1 0
Every job in manufacturing supports 2.91 jobs elsewhere in the economy, compared to only 1.54 in business services and 0.88 in retail trade: Supplier effects (e.g. car plant sustains jobs in steel industry); Respending effects (where workers spend their paycheques); Government effects (taxes that support jobs in government).
Almost every industry within manufacturing supports much more secondary employment than other sectors.
Source: Economic Policy Institute, Updated Employment Multipliers for the U.S. Economy (2003).
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Potential actions
Tax properly
Support manufacturing
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Policies need developing to support existing ecosystems, and develop new ones:
Agglomeration economies
35 30 25 z-score 20 15 10 5 0 0 10 20 30 40 50 60 Radial distance 70 80 90 100 Skills pool peaks at c. 40 miles
Ecosystems
Local micro-industry ecosystems drive innovation: Londons Square Mile: bankers, lawyers, accountants. Birminghams F1 ecosystem: a huge driver of innovation and economic success. China found concentration key for e.g. semiconductor success.
Source: Reserve Bank of Philadelphia Working Paper No. 11-42, 'The Agglomeration of R&D Labs.
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Potential actions
Tax properly
Support manufacturing
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New technologies
1900
1920
1940
1960
1980
2000
2020
2045
Source: Adapted from Raymond Kurzweil, The Singularity Is Near: When Humans Transcend Biology.
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Technology is subsidised by every government. In Europe and the UK, the process seems to be ineffective and insufficient:
New technologies
Bio
Neuroceuticals Genetic engineering
Nano
Thin films Fine particles Chemical synthesis Advanced microlithography
Info
Networking Telecommunications
Neuro/ Cogno
Humanoid robotics Humanoid computation Human cognition Human emotion
Anti-carbo
Energy storage Electric cars Battery tech Renewables
Today, a car emits less pollution traveling at full speed than a parked car did in 1970 from leaks. Matt Ridley, The Rational Optimist State Capitalism is on the march, overflowing with cash and emboldened by the crisis in the West. The Economist, January 21st 2012 Our industrial policy was meant to be the government picking winners. Instead, the losers picked government. Peter Mandelson, Today, January 26th 2012
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A 20-50 year view, and a cross-party consensus that this is needed, is essential:
New technologies
Ecosystem support
Selected technologies
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Potential actions
Tax properly
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Living standards
The bureaucrats own conclusion The relentless increase in the sustainability gaps suggests the urgency in considering in earnest profound reforms in social protection systems.
Source:
Reductions in primary spending or increases in revenues in various years needed to close the 25-year fiscal gap in the US
14 12 10 8 6 4 2 0
Actions begin in 2012 Actions begin in 2015 Actions begin in 2020 Actions begin in 2025
(% GDP)
12.5
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A decline in living standards of between 10 and 15% is needed to rebalance Western economies today. Tomorrow's continued job loss and wage pressure will mean more of that pain in the future
Reinhart-Rogoff threshold
Living standards
Governments
Japan Greece US
Households
Net borrowing (% disposable income) 2008* 15 10
Greece
20 18 16 14 12
5 0 0 -5
Italy Germany France
UK
Ireland
10 8 6 4 2 0 0 30 60
Portugal
25
50
75
Japan
US
100
125
Ireland
150
-10 -15
Size of bubble, non-proportional but directionally correct, represents (L) overall size of government expenditure 2011 (% GDP); (R) household final consumption expenditure 2010 (% GDP). Source: IMF, OECD, MGI, World Bank. * Greece 2006, Japan 2007 (latest available).
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Living standards
US Japan UK
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* Automatic stabilisers = big unrestructured government that continues to batten on the corpse.
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Living standards
Neuroscience shows that wanting, striving and acquiring are major and fundamental drivers of human behaviour.
An equilibrated world would have few Western necessities (car s, flat screens, etc.) per capita [at current prices]
Can insights from neuroscience, coupled with education, reengineer human behaviour towards less consumption?
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The Challenge
Potential actions
Likely outcomes
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Potential actions
Likely outcomes
How it looks now How it may be (10-30+ year view) No sign in most countries of electability of Grinches
Educate better
Privatisation of education?
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The pressing short-term issue is whether the neo-Keynesian disaster can be avoided. Probably not
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Alternative scenario
Eurozone Armageddon?
Assets Broad money soars BoE credits their reserves Commercial banks lend out a little of the money BoE owns 325bn gilts Money multiplier suspended
Mild inflation
Accelerating inflation
Growth rebounds Capital flight from Western government bonds and currencies Gilts plunge in value HMT still on hook for 325bn
Deflation Wage rises not enough to service debts Household debt accelerates rapidly
Households default
Hyperinflation
Inflation-driven recession, Taxpayer loses 150bn In addition, government debt overhang permanently limits growth
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* * * * *
V.
In the short term, the outcomes are unknowable. For the long term, as things stand, the continued economic decline of the West is highly predictable.
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Further reading
The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems, Presidential Address to the American Finance Association, originally published in the Journal of Finance (July, 1993) pp. 831-880 Michael C. Jensen Lost Victory Correlli Barnett
The Big Short Michael Lewis World on Fire Amy Chua Shall the Religious Inherit the Earth?: Demography and Politics in the Twenty-First Century Eric Kaufmann The Rational Optimist Matt Ridley
This Time is Different Carmen Reinhart, Ken Rogoff Once in Golconda John Brooks
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