Bank of England Monetary Policy Committee Member Gets It

By Michael Burke

Adam Posen, one of the external members of the Bank of England’s Monetary Policy Committee (MPC) has warned that the government’s spending cuts will cause ‘significant headwinds’ for the economy. In an interview with The Times (October 28), Posen says, ‘My forecast is that the Government’s plans for 2011 and 2012 will have a material down-drag on growth.’

Posen also highlighted key areas which would have a ‘particularly high short-term impact’- public sector job cuts, cuts to welfare spending and the VAT hike, with all of these reducing the incomes of middle-income earners and the poor- who will be forced to cut back spending. In a similar vein, the chief economist for the Chartered Institute for Personnel Development argues that not only would raising VAT hurt the same groups, but would also create an additional 200,000 job losses in retailing and related sectors, bringing the likely total job losses up to 1.6 million, not the 490,000 claimed by the Tory-led Coalition.

Posen is a US academic who has closely studied the ‘lost generation’ of slow growth and recession in Japan which has been in place since 1990, warns of increased risks have of too slow growth with a negative impact on prices. He also argues that Coalition policy choices have increased those risks, whereas an increase in Capital Gains Tax would not. (In fact from the June Budget higher rate tax payers will pay just 28% on this unearned income, compared to 50% on their salaries).

But in an echo of what SEB , Green and anti-poverty campaigners have called for, Posen’s boldest proposal is that the State-owned banks should not be privatised, but instead used to increase productive lending. ‘You can take the large banks in which the UK Government has a controlling stake and change their lending behaviour,’ he says.

‘....In my opinion the Government should be saying it is more important to the UK taxpayer right now that we have banks under our control providing more lending than that we maximise the privatisation proceeds in the near-term.

‘The historical record is it is penny-wise and pound-foolish to try to maximise the returns from the rapid resale of your nationalised banks. It is better to use them to help get out of the credit crisis and the recession....’.

A sensible word from inside the Bank of England at last.

The Golden Years of California is Behind Them

A chart I'm very proud of is the "generational RGDP growth" I put together for the nation which shows the 20 year average real economic growth rate of the nation going from 4.5% to 2.25%. The ramifications which of course shows we're slowing down and are incapable of producing the economic production necessary to tax and pay for all the government goodies we've promised ourselves. However, I decided to do the same for the state of California with it's Gross State Product. The reason why is multifold;

1. The brilliant election of Jerry Brown, Barbara Boxer and others show the citizens of California are still incomprehensibly ignorant when it comes to basic economics let alone their own state's historical finances.

2. I tire rather quickly of hearing people from California tell me how "everything" is created and made in California and that their economy is booming and why you're just a red-neck hick in a fly over state that doesn't understand how truly economically and culturally awesome we are.

3. California, much like the banks, is going to need a bailout at the expense of the other states in the Union, which is why (when that time comes) I advocate turning California back into a territory.

4. Californians dismissing all their economic woes by saying, "but the weather is really nice" which is the same that could be said of Cuba and Haiti.

5. Citing Silicon Valley as some kind of super economic savior when in reality that was what it was 10 years ago and has since been shipped out to India.

6. The nazis in San Francisco find it their place to tell parents how to feed their kids and have banned toys from Happy Meals.

All of these things (and much more) do NOT help bring about economic growth, but rather impede it.

So to see if my economic spidey senses were correct and to see if California is once again the economic juggernaut all pro-California people claim it is, I pulled its year to year RGSP growth rates and then averaged them over 20 years to see what the general trend it.



Once booming and a genuinely golden era of economic progress, California touted a VERY impressive 10% annual economic growth rate during the 60's and 70's.

It's now half that.

Again, I don't know how they're going to pay for all they promised their citizens and government employees (well I do know, they're going to come to other states for a bailout), but it seems with their economic growth rate cut in half, they certainly won't be growing their way out of their problems.

(statistical note, this does not include 2009 or soon to be 2010 GSP which I'm sure would only reinforce the trend).

Enjoy the decline! (or move to Arizona)

The Education Bubble Continues

This is a brilliant analogy between the alchemist's paradox and today's educational system.

More education simply dilutes the value of education.

Ergo why I focus on statistics such as MBA graduates as a percent of the population and put more and more emphasis on the trades and 2 year programs than a bachelors degree in (well) pretty much anything.

People on the left constantly clamor for more education spending. Well, they got it. Tons of it. So much to the point that having an education is pretty much worthless and is nothing special. Education is now the new sausage party. You now need a masters degree. And if not that a doctorate. And oh, guess what? By the time you got your doctorate you not only have $100,000 in debt, you have no better job prospects because everybody else did what you did. And hey, by the way, how's that hope and change and stimulus coming along? Any of you recent Obamanaut 20 somethings fresh out of college employed? Yeah, how is that economy coming along? Too bad the republicans only took over the house. Stalemate from here on out my friends and at a 9% unemployment rate to boot.

Imagine though if you had just got yourself a trade or tangible skill such as roofing, or plumbing or programming, you would have spent only 2 years in school, a fraction of the cost, and would have been working for the past 10 years earning money instead of pissing it away on a progressively worthless sheepskin.

You can already start to see how similar the education bubble is to its housing bubble sister. I'm just wondering if (similar to the people who bought at the peak of the housing bubble) people with their masters in (fill in liberal arts degree name here) __________ are going to deny reality and "wait for the market to turn."

It won't kiddies. It simply won't. You want to know why? Because no matter what the aging hippie boomers taught you in "academia," in the real world (where the adults live), no economy progresses unless there is genuine economic production. And by "genuine economic production" we mean "you produce something people want."

Not "well roundedness."

Not "raising awareness."

Not "campaigning against the clubbing of seals skills."

Your doctorate in philosophy, women's studies or whatever worthless tripe you decided to avoid reality with and play "make believe I'm an adult" degree is now about as common as a TV reality show. It produces nothing of value and therefore you HAVE NOTHING OF VALUE (economically) to offer society. Your economic value is 0.

But don't listen to me. What do I know. I'm just an economic genius that's predicted every major and mediocre economic event since I was 20.

Go back to your lives people. Nothing to see here.

Who Pays Money for "Raising Awareness?"

My first shot at one of these Xtranormal films. Failed to change the camera shots.