Politics Summary: Thursday, January 21st

THe last story is very interesting indeed. It is clearly a problem when the private sector (which generates wealh) is paid less than the public sector. This cannot ever lead to a stable economy and must be redressed.

Isn’t a little simplistic to assume only the private sector, in isolation, generates wealth? I mean, surely good schools and hospitals are essential to any wealth generating economy? If we were to privatise them would they suddenly become ‘wealth generators’?

The telegraph article hardly seems balanced, quoting only a shadow minister, the director general of the British Chambers of Commerce and an economist moaning about the ‘gravy train’. The last point is revealing; if many of the lower paid public sector jobs have been outsourced then surely its hardly surprising that group made up of highly educated professionals are well paid, compared to a more mixed group? I’m sure the standard deviation of private sector pay would be very revealing.

Not simplistic at all. Hospitals and schools while important do not generate wealth. The private sector has been allowed to be on the receiving end of the economic downturn. Losses of jobs and many companies instigating pay cuts or freezes. At the same time the public sector, which does not contribute materially to the economy, actually increased pay. We need to really look at public spending in great detail and adjust it to reflect the current state of the economy.

Yes standard deviation of private sector pay might be interesting but an entirely moot point. Private sector is very simple, you have to be physically paid less than the money (or utility) you provide. Or to put it simply you earn less than you make or the business dies.

So David, are you advocating that the private sector should pay its staff better, or a race to the bottom where everyone ends up low-paid?

I’m not sure how you can say “Not simplistic at all.” and follow it with something as simplistic, not to mention wrong, as “Hospitals and schools while important do not generate wealth.”

Does BUPA generate wealth? The NHS’s income is from Govt run compulsory insurance programme, BUPA’s is from a privately run voluntary insurance programme. What does the NHS do that stops them generating wealth?

Remember, it generates no wealth, not just less, in your view. You must also pretend that no coordination problems exist in the production of public goods.

Does Eton generate wealth? It certainly increases the human capital of those that go there, so yes. State run schools do the same, if to a lesser extent, but surely you can’t say they generate no wealth.

Now, you can argue that the Government does a worse job at these things than the private sector does, but it shows a degree of economic illiteracy which is worryingly prevelent in some rightwing circles to say the government is incapable of producing wealth. There are a great number of things the government does better than the private sector (its called market failure) and it seems odd to say it produces no wealth.

There is a nuanced and powerful argument out there that the state interfers too much. You are not making it, you are preaching voodoo economics.

Voodoo economics? I like that. Might use it myself some time.
My normal measure for generating wealth is that money goes in and profit comes out. For example I spend ten pounds on materials but get back twenty pounds for a product I make. As such I have made a profit (I know dangerous grounds here but bear with me). A private hospital provides a service and by its very nature as a private entity must charge more money than it spends providing that service. That is a simple fact of life. The same goes for private schools like Eton. Public sector does not post a profit, does not answer to shareholders and has absolutely no incentive to produce their product smarter, better or cheaper. All they ever need to do is meet a budget and that is why they do not generate wealth.
They may aid others to go on and generate wealth but in and of themselves they do not.

Wow, thanks Left Outside! Put more eloquently than I could manage. The later post, explaining that the figures for public sector pay include the nationalised banks, is absolutely hilarious!

David, there’s obviously more to private sector balance sheets than simply what it pays its employees and your strange notion of utility! Are you just making this stuff up as you go along? The standard deviation of private sector pay might demonstrate that lumping the pay of low paid, unskilled labour, with skilled professionals, might be at best misleading, as further analysis of the figures is already demonstrating.

It’s really worrying that such deceitful stuff is being published unchecked in the right wing press, to back a conservative agenda of immediate and savage cuts that would seriously endanger any economic recovery.

Emilia And here lies the catch. Private sector cannot pay more because we are tied down with tedious things like making a profit. What I am suggesting is that there should be a reasonable wage for a reasonable job. Surely if the public sector has the luxury of paying above the odds then it is only because they are not ‘competitive’.

Joe, you are right there is more to the balance sheet than just wages. The point I was making is that to survive a private company must make a profit. To do that all parts of the business must produce more than they consume. My use of the word ‘utility’ was more to cover the bases.
For instance a cleaner does not directly earn a factory money but the cleaning he does allows continued production. The benefit of which must be more than the cost of him.
Simples.

David – what about ‘social capital’ and ‘wellbeing’. I think going forward these intangible assets will become important factors when looking at the health of the economy & society, rather than just a traditional balance sheet of ‘monies paid in’ & ‘monies paid out’. This obviously requires a big, bold vision…..

Re Bupa _ is wish they would pay the NHS for all the years of medical training that they benefit from whenever they employ ex-NHS doctors & nurses.

Liz McShane, you are quite right intangibles are important but given the current financial climate surely the ‘tangibles’ must be right first even if we must sacrifice the intangibles for a time. For instance when I was starting out in life and did not earn much I did not have a holiday. I was missing an intangible in order to secure my future in a very boring monies in and out basis. Now that is sorted I can refocus on the intangibles and have a holiday. My suggestion is that the country is at that place where intangibles must be put on hold and the basics of money in and out must take precedence.

David; the term ‘voodoo’ economics has existed since the late 1970s as a description for what neo-Keynesian economists and thinkers regard as dangerously simplistic New Right economic theories. Amusingly I think it was George Bush Senior who coined it in his primary battles with Ronald Regan!

David; your take on wealth generation seems to come from the same origin; some version of supply side economics that for many of us lefties is so simple as to be useless or even dangerous in its limited view.

You seem to be confusing the traditional right critique of the public sector as inefficient (you can’t really link this to the figures without more evidence) without a profit motive, with an idea that it doesn’t create any wealth whatsoever; completely ignoring the cost and development of human capital and the state of the wider economy in terms of money supply and the problems of long term investment etc. etc.

Wealth generation is really not ‘simples’ and cannot be explained adequately with such simple examples.

Apology! Of course the Republican primary was in 1980…

Thanks Joe, I’m reall not sure David knows what he’s talking about.

The public sector can be less efficient than the private (the private sector destroys the least efficient 20% every year after all) but when it comes to public goods it can be more efficient. It can also most definitely produce wealth. Talking of “simples” and “tangibles” is obscurantism not analysis.

Indeed where there are information asymmetries, where one party to a transaction knows more than the other (i.e always), there theoretically always exists interventions which will improve outcomes (I think you have to assume no transaction costs etc.) but it seems David cannot even begin to argue about the differences between profits, wealth creation and efficiency.