In order to redress the balance of negative sentiment, combined with a political(ly) charged environment with electioneering by all major political UK parties posturing new populist policies (say that fast a few times); we thought it a good idea to put a little perspective on the matter of #Tax avoidance (tax planning we prefer to call it). Remember this is #Election2015 coming up on 7 May 2015.
Part 2 – Revelations
Reflections on 2014
As a behaviourally focused economics publication we have been very quiet and inactive during 2014. A year of reflection and introspection, however, we are ready to resume service, with vigour. And what better way to start than with a reflective piece and thoughts on the biggest risk we believe are developing under the surface without warning. Our concluding theme of 2014 is that of moral hazard.
As Margaret Thatcher once said: “There is no society”; we state today that there is ‘No Moral Hazard’; in fact there is only Moral Hazard PLUS.
We believe that there is a strong correlation between QE (Quantitative Easing) and economic moral hazard developing a new strain, mutating like an unseen virus.
QE might have saved the financial system of the developed world, but it it only provided a shot in the arm and acted as a stimulus for sustaining moral hazard.
Economics follow a flow and cyclical pattern, as discussed in our article entitled ‘Information Age Irony‘. These patterns and flows weave themselves into the fabric of our lives and affect individual economies in different ways.
It is important to understand where and how economic cycles develop and flow and how much influence they have on our general economic activities on a day to day basis, but we should not become overly obsessed by them, as they can be short-circuited from time to time by policy and policy-maker’s actions, wherever individually or collectively.
In part 2 of this article we will focus on the revelations of QE and the underlying threat of moral hazard returning on a grander and more catastrophic scale, if it goes unchecked and misunderstood.
© theMarketSoul 2014
- Bart Chilton Says Goodbye – The Essence of NeoLiberalism and the Sorcerer’s Apprentice (jessescrossroadscafe.blogspot.com)
- Scrutinizing market failure through microeconomics (edwardcollin742.wordpress.com)
- What is neo-liberalism (bruneljournalism.wordpress.com)
- New-liberal Capitalism (dissidentvoice.org)
- Henry Farrell Argues Against Left Neoliberals Like Me… (delong.typepad.com)
- Susan George: austerity means socialising losses and privatising profits – Guardian video (inquiringminds.cc)
- Polanyi on the Persistence of Economic Dogma (geoffkennedy.org)
The real challenge and issue:
The US Debt default that is looming ever larger with each passing day that the US Congress, Senate and White House seem to treat as a brinkmanship fatigue challenge will have a specific default structure or process attached to it, that the rest of the world needs to get to grips with very quickly.
What are the consequences:
Because, if Americans are willing to engage in quasi-negotiations with each other on this acrimonious level; then world beware, they will treat you with even more disdain and petulance than they have been treating each other.
This is commercial war on a scale we have not experienced for quite some time.
And the most disparaging part of this process or potential risk is that no commentator has yet stood up and called time on this challenge or at the very least attempted to pull the veil from the threat and fall-out the rest of the world will experience.
Of course 17 October 2013 is a technical default breach days only; because as most business people who experienced bankruptcy will attest to is the fact that you can continue to trade (on the goodwill of your creditors) beyond the point of being solvent, so long as those creditors continue to good-naturedly extend some further credit or payment terms to you.
- The Myth that U.S. Has Never Defaulted On Its Debt (ritholtz.com)
- VIDEO: Fed’s Williams: U.S. Debt Default Would Be ‘very, Very Dangerous’ (marketcurator.com)
- 12 Very Ominous Warnings About What A U.S. Debt Default Would Mean For The Global Economy (thesurvivalplaceblog.com)
- Shutdown bad; default crazy… and catastrophic for the economy (prairieweather.typepad.com)
- Hope? Shutdown/debt talks but no resolution yet (bigstory.ap.org)
- “Risky Business”: Corporate Leaders Bemoan Tea Party Default Crisis Created By Their Own Donations (mykeystrokes.com)
- White House Rejects Latest House GOP Proposal to End Shutdown, Avoid Default (ktla.com)
- Obama says defaulting on bills ‘dramatically worse’ than shutdown (abc.net.au)
- The U.S. Has Repeatedly Defaulted: It’s a Myth that the U.S. Has Never Defaulted On Its Debt (rinf.com)
- The default has already begun (blogs.reuters.com)
We wrote about a particular economic phenomenon referred to in this post about economic cycles and particularly the Kuznets swing; which we find the most interesting and thought provoking cycle. The reason for this is that it is a generational cycle, only lasting or more accurately stated lasting anywhere between 15 – 25 years.
So where are we on this cycle and what does it mean for me, should be the two most obvious questions to answer?
Lets address both separately below.
Firstly we believe we are now around seven years into a downward phase of the Kuznets cycle, therefore to some analysts it would mean that we are either almost half way or to others around a third of the way through this cycle.
Secondly, and more importantly, the impact it has on market participants like all of us:
We believe that the downward phase of a Kuznets swing is the ‘exuberance‘ correcting phase; when markets and other factors of productions contributing to mostly normal market clearing activity ‘got slightly out of kilter’. The Kuznets swing is always there to bring these factors of production into alignment. It is a consolidation phase of the cycle and interestingly for this particular phase, it coincides with disruptive technological advances around Cloud Computing, dis-aggregation of intermediaries, especially in labour markets with labour or skills exchanges appearing everywhere. Examples include, Elance, oDesk, PeoplePerHour, etc..
Furthermore, and this is the most import action point for our readers to understand and appreciate, this consolidation and technological advance has a severe impact of wages levels and the distribution of where actual ‘work’ is being performed.
Hence headlines like the one we spotted this morning regarding real wages in Britain declining relative to other (very unproductive EU cousins) are not helpful without the pundit exploring and engaging n deeper analysis of the underlying drivers for the pressure.
Understand that the world of work is changing much faster than we had ever become used to in previous generations. As active able and willing participants in this market for labour and skills we have clear choices: Up-skill, be competitive appreciate and plan for volatility in the labour supply market, by ensuring flexibility in location, skills and prices. It is especially painful to suffer real wage declines, but remember this is the market’s subtle way of signalling a problem or challenge in that particular market and a way of adjusting in order to restore the natural balance and clearing prices.
We believe every interfering politician and educating commentator should always bear this in mind.
- Companies hire foreigners as British workers ‘unwilling to move’, says Chris Bryant (telegraph.co.uk)
- Opinion: On Immigration Labour Must Do Better (leftfootforward.org)
- Labour backs down over Tesco and Next row (theguardian.com)
- Tesco criticised over cheap labour (belfasttelegraph.co.uk)
- Tesco criticised over cheap labour (standard.co.uk)
- Pony ponderings… (themarketsoul.com)
- Bryant: ‘Employers recruit from low-wage EU countries’ (itv.com)
- Now Labour backtracks in immigration row and PRAISES Tesco and Next for ‘going the extra mile’ to hire British workers (dailymail.co.uk)
- Recent studies show the future of the European labour market are part-time jobs and project work (prweb.com)