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July 04, 2017

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Matt Usselmann

Dysfunctional capitalism? No better example than the current Student Loan System.

Where you have earn £55k (twice the average salary) to even repay £1 of your student loan.

After having advertised for these loans, saying that on average students earn £12k more than non-graduates.

e

A great post: clearly, concisely, precisely where we're @. (But for mention of so much hidden abject misery)

Metatone

I'd add that the Tories big round of loyalty appears to have been bought with "Right to Buy" and that looks like a trick that they have yet to think of a way to repeat.

Oakchair

This stems from the 1970-1980's. Consevatives deluded themselves into believing that the oil shocks were a reflection on social democracy. They won power and the receding oil shocks gave them the appearance of legitamy. But it's been 3 plus decades and all their policies- banking deregulation, trickle down, austerity, utilities privatization, bashing unions etc have been proven as failures. No educated young people are going to the consevatives. They're stuck in an out dated ideology and modern society is driving past them.

David

@ Oakchair.

Dangerous talk. You will drag Ralph into the comments.
Why are all the left commentators analysing the failing Tory party at the moment rather than fighting them?
Is there an "idea" brewing that they could be for "turning"? And that could be better than leaving the EU with Momentum?
For evidently many of the ideals of the left are not supported, or even tolerated in the EU. But the EU offers the only possibility of a reasonable semi-prosperous future for Britain.

I think you are probably wasting your ink!
There is a plethora of agenda that have set all of their hearts and minds. But winning is the aim, uncaring about the path or the result.

And they have us all guessing... "can they really be idiots... all of them?"
Carry on!

aragon

Tuition Fees:
Independent/Times/Metro headlines tomorrow.

Micheal Gove and Jo Johnson - Epic Fail.

If we force the Tories to abandon Austerity, Public Sector Pay Cap, Tuition Fees etc

People might vote for them? Dilemma?

TINA vs TIAA (There is an Alternative)

aragon

Well past midnight - make that today's papers when they refresh the websites.

Story in the Times:
https://www.thetimes.co.uk/edition/news/three-quarters-of-graduates-will-never-pay-off-student-debt-d0m5csx5v

"Three quarters of graduates will never repay their student loans and the poorest face the biggest debt, according to a comprehensive analysis."

Thanks the IFS for the analysis...

aragon

Guardian and BBC

http://www.bbc.co.uk/news/education-40493658

"The IFS analysis says scrapping tuition fees would cost £11bn per year. But it also warns that continuing on the current trajectory of "high debts, high interest rates and low repayment rates" would mean problems both for "graduates and the public finances"."

David

There is a staggering amount of student debt still unpaid when US graduates reach retirement age.... by 2.8M people in 2015.
http://time.com/money/4624350/older-borrowers-student-debt-retirement/

Obviously not fit for purpose, in the US the government has started trying to recoup by deductions from OAP social security payments, putting many retirees into poverty.

Time, bomb.

aragon

I knew it was dysfunctional in the USA, folling a long article in a US Newspaper (many years ago) but pursuing people into retirement.

This is what happens when you view public spending as a cost and in isolation.

Also call something a 'Debt' or'Fee' and not a 'Tax' and you can still pursue people into a perpetual (virtual) debtors prison, regardless of income or merit.

People just see (11Bn in the UK case - 8Bn after non-payments) of potential public spending.

A more systemic approach (Sectorial Balances) makes this nonsense apparent.

In the case of student debt a straight forward calculation, or the US experience makes the dysfunction clear.

Phil

Matt - the current threshold for student loan repayments is £21,000, not £55,000; not sure where that came from.

Blissex

«the Tories have forgotten to offer voters anything other than austerity.»

Again on this delusional argument: our blogger defines “austerity" in a rather "convenient" way as “the change in the cyclically-adjusted primary budget deficit.”.

The Tories have been offering voters far more than that: also a fantastically loose credit policy aimed at pushing up asset prices, my usual quotes from G Osborne which our blogger has shown to be aware of:

“A credible fiscal plan allows you to have a looser monetary policy than would otherwise be the case. My approach is to be fiscally conservative but monetarily active.”

““Hopefully we will get a little housing boom and everyone will be happy as property values go up,” George Osborne is said to have quipped at a Cabinet meeting earlier this year.”

and from D Cameron:

“It is hard to overstate the fundamental importance of low interest rates for an economy as indebted as ours… …and the unthinkable damage that a sharp rise in interest rates would do. When you’ve got a mountain of private sector debt, built up during the boom… …low interest rates mean indebted businesses and families don’t have to spend every spare pound just paying their interest bills.»

That (pushing for continuing "Barber" and "Lawson" style credit booms) to me seems electoral catnip for a large segment of the population. Larger segments of the population are suffering a fall in living standards because of an adverse “change in the cyclically-adjusted primary budget deficit.”, but they would not vote Conservative anyhow, and their votes matter less because they are geographically concentrated. Also several million low-income voters are immigrants without citizenship who cannot vote.

The idea that that the UK in the grip of a generalized squeeze is what our blogger and SimonWL and others seem to be pushing, but the evidence seems to be that large segments of the voters are doing rather well. Which is a policy of upward redistribution, not austerity as it was properly defined.

«the Tories big round of loyalty appears to have been bought with "Right to Buy"»

I think that was relatively minor. Keeping mortgage payments low and pushing up house prices in general drive more voters.

«and that looks like a trick that they have yet to think of a way to repeat.»

If it is low mortgage payments that matter, that is low interest rates, that may last yet a while. The "private keynesianism" strategy of Conservatives and New Labour up to 2007 was backed by oil exports:

http://mazamascience.com/OilExport/output_en/Exports_BP_2016_oil_bbl_GB_MZM_NONE_auto_M.png

and it is currently running on fumes and exports of south-east property deeds, which is not sustainable...

Blissex

As to student "debt" that is just a red herring, which in a refined tutorial room like this should not be taken seriously: real debt has to be repaid regardless of the debtor's income. If it were real debt it would have significantly adverse effect on the credit score of students and new graduates, but banks seem as eager as always to lend to (most) students and new graduates as they expect them to get better than average jobs.

"Debt" that is repaid only with a modest surcharge on income tax above a threshold is a different thing.

The thing it is pretty obviously is an accounting fiction designed to put in an off-balance-sheet vehicle the state spending needed to keep universities going, for the purpose of keeping the government-debt to GDP ratio lower, in practice yet another Enron-style PFI. The tuition fee "debt" that is apparent on graduation is simply an estimate of future tax surcharges to pay.

Therefore the abolition of student fees will have no real impact on the cost of government, it will just reclassify a relatively small amount from fictionally off-balance-sheet to on-balance-sheet.

Blissex

«This stems from the 1970-1980's.»

Very interesting comment from "Oakchair", as it is perceptive, but I have a slightly different take on the details.

«Consevatives deluded themselves into believing that the oil shocks were a reflection on social democracy.»

Perhaps instead of "deluded themselves into believing" it should be "took advantage of".

Also note that there were *two* completely different oil shocks: in the 1970s it was a negative one of imports, but in the 1980s there was a positive one of exports. So the Conservatives benefited twice. T Blair wrote of that in 1987:

“First, her arrival in Downing Street coincided with North Sea oil. The importance of this windfall to the Government’s political survival is incalculable.”

and J Rogers, a clever hedge fund speculator:

“But the fact is that 1979 was also the year that North Sea oil started flowing. You find me an elephant oil field and I will show you a very good time, too.”

If the SDP and in particular the Falklands thing had not happened, most likely M Foot would have won 1983 with a landslide, and then Old Labour governments would have been able to spend the immense scottish oil windfall on their constituencies, instead of lower taxes and higher house prices. The prize of power in the 1980s was indeed the ability to spend the scottish oil windfall.

New Labour managed to take advantage of the N Lawson induced house price crash to gain power before another surge in oil production, and held on to power for a long time also because they got in power at the right time to spend a huge scottish oil windfall. This graph says a lot about UK politics in the past 50 years:

http://mazamascience.com/OilExport/output_en/Exports_BP_2016_oil_bbl_GB_MZM_NONE_auto_M.png

«all their policies- banking deregulation, trickle down, austerity, utilities privatization, bashing unions etc have been proven as failures.»

Well, depends: for that list is both incomplete and includes "austerity" which has been redefined into a misleading term.

In the past 35 years *a lot* of people, most of them in the south-east and London, have seen a huge boom in their notional wealth and in their standards of living, thanks to what C Crouch called "privatised keynesianism" fueled by a fantastic credit boom, 35 years of almost continuous "Barber" and "Lawson" credit booms.

As a "one nation" tory recently wrote those policies did not unleash any investment and productivity boom in large parts of the country though:

“47% of the UK population live in areas as productive as the former East Germany. Outside the south-east, the UK has a massive infrastructure deficit: per head, its just 40% of the OECD average.”

But the people affected by this don't matter electorally: they are concentrated in a few areas, mostly into safe seats.

Blissex

«Productivity has flatlined for ten years: it's this that underpins the discontent identified by Jonn.»

and as F Coppola has reported, "productivity" really meant "scottish oil windfall":

www.coppolacomment.com/2016/07/the-untold-story-of-uks-productivity.html
«Notice when productivity started to slump. It was much earlier than 2008. In fact the data (which ONS have helpfully provided in Excel) show that output per hour started to fall in Q4 2006.»
«The UK's massive productivity growth from 1990-2006 was due to oil, not financial services. Even energy utilities downstream from North Sea Oil had a greater productivity rise than financial services. And both oil and utilities suffered a massive collapse.»

The smaller boost to "productivity" from financial services from simply due to fraudulent accounting, systematic under-estimating of risk depreciation.

Because so many Economists, including apparently "marxian" ones like our blogger, have followed JB Clark's expunging of "land" from Economics, they are unable to make a distinction between higher production because of higher *fertility* and because of higher *productivity*, and also between the reverse, a fall in fertility instead of a fall in productivity.

Sure, the output of barrels of oils per hour worked in the scottish oilfields has declined a lot, but that's not because the oil workers have become less productive, but because the oilfield land (on the bottom of the sea) has become less fertile.

Blissex

«unable to make a distinction between higher production because of higher *fertility* and because of higher *productivity*, and also between the reverse, a fall in fertility instead of a fall in productivity.»

For a truly amazing example of the incredible stupidity that is the consequence of that, I have just read on "The Guardian":

https://www.theguardian.com/business/2017/jul/05/productivity-usually-bounces-back-after-a-recession-britain-economy
“While the number of people on high-productivity North Sea oil and gas rigs has gone down, the number employed by supermarkets on home deliveries has gone up.”

The crass imbecility of this statement!

The main one is that oil rigs are not "productive" of oil, they are "extractive", because it is not the oil rig that produces the oil. While home-deliveries are "production", because each one has to be made by the delivery driver. There is no reservoir of home-deliveries under the bottom of the sea to be extracted with an home-delivery rig.
The oil rig and its workers produce something, which is oil extraction services, but that output is a of a completely different nature from oil production.

The second imbecilic point in that is not just “the number of people” has declined but the fertility of the oilfield has declined too, reducing the amount of oil extracted for a given amount of extractive effort.

From Arse To Elbow

James O'Connor's scheme is enlightening with regard to tuition fees. The default Tory response, articulated by Michael Gove and Jo Johnson, is one of legtimation: that non-graduates would be disadvantaged (made less happy) if they have to subsidise the education of graduates, so fairness demands that graduates pay (somehow).

But the problem we face is a crisis of expected accumulation - i.e. the fear among many (though not upper middle-class types like Gove and Johnson) that most graduates may not secure sufficiently well-paying jobs in the future (a prospect that the IFS report would seem to share).

But this fear is not simply about the possibility of stagnation, it springs from a deep-seated cultural fear of debt (which was ironically used to garner support for austerity in 2009/10), which is more prevalent among working class families who now have least confidence in the earnings premium offered by a degree.

In other words, the Tories are incorrectly framing tuition fees as an issue of legitimation when it is actually one of accumulation.

scottzum

Student loans are a symptom of the real issue. Demographics! Too many old people, not enough young people. Political power is becoming concentrated in older generations.

But believe me socialism will not solve the problem. Only an acceptance by older generations that they must work much, much longer and pay towards their social care and health costs.

But in a democracy I doubt this can be done (exhibit 1 Tory dementia tax). So I expect some sort great financial crisis will have to occur.

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