Refactoring

Just to add to the previous post - if MFP/ROP is 0.2% and GVA is 1.7% (both 2000-9) (from the Annex, this is), then the gross added profit is still 11% of the total GVA - that is, a massive capital investment makes a small return but still a big chunk of the overall additional wealth created. As a comparator, the 'good times' of the 90's the average was a GVA of 2.2% and an MFP of 0.9% - 41% of value added accruing to capital. Or should I say, accruing as profit to capital, since this is over an above amortisation and capital turn over.

A financial classic

A classic feature of economic crises is that suddenly corruption is unveiled - economic growth is the great rock that, when it is lifted, is found to be covering for the lice festering beneath.

Simply put, during the good times, a plausible story can allow an otherwise worthless company to keep on borrowing, so long as investors keep making profits, no-one looks too closely, but when the chips are down, and someone gets bilked, suddenly we all realise that everyone gets bilked. In this case, not, that the firm was judged to be reasonably sound and a secure investment, not a fringe risky business, level headed investment folk, not mad speculators, have been burnt here.

Of course, Davy Cameron reckons there must be a day of reckoning. of course, it has to be the consciously bourgeois party that says that, coming from Labour it would be called a return to class war. I always laugh at the cretins who see the PRC (China)'s long prison sentences for fraud as being some proof of socialism.

Gold finger

Follow up from here.

According to the BBC, Gold has now hit $1,000 an ounce.

Now, mark you, this is a significant sign of recession. The beeb points out people are fleeing the dollar, looking for secure investments - gold is the ultimate safe commodity.

Imagine, as my previous post did, that we had gold backed currencies. If that were the case, what we'd be seeing now, would be massive deflation, as the value of money rose and rose, and more things could be bought. Prices would tumble, left and right. That is a classic part of a crisis.

The effect of a massive down push on nominal prices would be that firms would be harder pressed to make the nominal price of their debts. Many would go under.

The fact that we are under a fiat money system means such massive deflation doesn't occur. Instead, we have bankers behaving as if inflation is still the problem (and we have official government inflation targets).

Inflation in a time of economic slow down, I believe, is called stagflation.

Economics fun

OK, so, apparently gold has hit $855.10 an Ounce.

Lets do some maths. When the pound was convertable to gold it was 113.75 grains of gold to the pound/sovereign. So, to find what a gold sovereign is worth in modern dollars, we simple do (113.75/480)*$855.10 = $202.64. The BBC today is giving the conversion of dollars to pounds at 0.5043, so we multiply that by $202.64 to get a whopping £102.19.

Next, simply divide your wage/salary by £102.19 and you can convert yourself into a Dickensian person, earning a whopping £5 a week, or something.

Put another way, its a good reminder of relative economic wealth - all those trailing zeroes on your salary are just the fruits of inflation, the real gold value you possess says a bit more (obviously, this gold price is a high, and gold over the years has changed its natural value, but as an indication of the movement of incomes it has its uses).

This website gives historical wages, can you beat the wage of an agricultural labourer in 1931 (when the gold standard was abandoned)?

Many a mickel

OK, budget. Brown is very very clever. Riddle me this - he is inflicting pay cuts by holding wages down to less than inflation, but he gives a net tax cut to salaries/wages in thwe £17K-£43K bracket (according to you master Akehurst. This simultaeously will cut upward pressure on wages whilst also delivering a net benefit to the real size of the public purse. The cut makes brilliant politics because it is a headline cut in the nominal rate of tax, and so many people will benefit, slightly, that all talk of the overall increase in taxation will be swamped.

To my mind, Brown is and remains a highly ingenious Keynsian, with the political nouse to not say so. What we have in action is an incomes policy - IMNSHO.