It is Obvious

Chris Rick has got altogether too much to say

Archive for October, 2010

If the cap fits…

Posted by chrisrick13 on October 29, 2010

It is obvious: fighting the market is always expensive.

Do you remember a few years ago when the government decided to move whole departments “up t’ north”?  This is because it would save a lot of money.  The staff would have a much more pleasant lifestyle and would not be paid London weighting.  Also rents were cheaper for the offices and suppliers charged less.  There was not an adverse whimper anywhere.  This was seen as a ‘good thing’.

There were other hidden savings in that for example the workers would be on much shorter or efficient commutes so saving energy.  It reduced the pressure on transport in London with other benefits.  The workers and families being healthier would be less of a burden on the health service.

What has happened today?  There is to be a cap on housing benefit of £20,000.  This is seen as a problem as families will have to move out of the big cities to cheaper areas.

I live in a leafier part of Croydon.  I am not as rich as I might like to be but I am a long way away from poor.  I live where I do because it is a balance between affording the type of house I want to live in and how much of my life I am prepared to tolerate commuting.  Indeed I have looked into this recently and I can rent my house out for a little over £1000 a month.  I would be very happy for someone to give me their £20,000 housing benefit to live in it.

So why is £20,000 not enough to rent a house in, say, Clapham?  The answer is that a lot of people, who have got plenty of money, want to live there because they want to be close to work and the city centre.  So the market has put prices up because there are not enough houses to meet the demand.  Part of the reason there are not enough houses is because there are a lot of people on benefit occupying them!

If you want to have an electrician in central London you have to pay a premium because he has to earn so much more to live there.  This implies that housing benefit is actually pushing up costs.  If people on benefits were given enough money to live where I do (and no more) then they would have a much more pleasant lifestyle by moving here and cost the state a lot less.  This would then drive down rents in London and people who needed to work in London could move closer to their work and not have a long commute.

So reducing housing benefit will force people to live in nicer country areas.  It will drive down costs for business.  It will result in national energy savings.  It will result in less pressure on transport.  It will save the government money.

Indeed it looks little different to moving a government department to Wales.

So why the fuss?

It is obvious: fighting the market is always expensive and seldom works.

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Stupid Question

Posted by chrisrick13 on October 21, 2010

It is obvious: the previous government did not know what it was doing.

At this time there are so many things I can write on that it becomes like a feeding frenzy.  How can I miss the large number of opportunities presented?  I have to grab them all.  At the same time I know that great outpourings will diminish the value of what I do write.  Here is one I could not avoid writing.

Roll back two years.  No credit crunch.  The government spending more than it earns.  No plans for a reduction of spending.

At what point was the government going to put its hand up, apologise to the electorate and bring in huge cuts in expenditure?

It is obvious: the previous government did not know what it was doing…I hope.

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Groundhog Day…again

Posted by chrisrick13 on October 21, 2010

It is obvious: a lot of people do not understand.

Why did we have a spending review?

It was because the amount of debt that the government had built up on our behalf was (is still) getting close to the point where the country cannot afford to pay the interest on the debt.  When that happens the country must stop paying interest and defaults on its debt.

If action had not been planned by the government (publicly) then the market (the entities that lend government money) would have pushed up the cost of borrowing money or refused to lend at all.  Default would have happened.

If the pain of budget cuts is a pin-prick, then the pain of default is having your arm chopped off.  Action had to be taken to prevent it…the spending review.

The Credit Crunch had nothing to do with UK government debt.  No matter how it was arrived at, it was a problem that banks got into through unwise or risky lending policies.

The credit crunch is only related to government over-spending in that it forced the government to do something about it sooner than it might otherwise have done.

It is obvious: a lot of people do not understand and they still don’t.

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Bad Hair Day

Posted by chrisrick13 on October 20, 2010

It is obvious: we have a free press.

I shouldn’t be writing this but I need some way to lower my blood pressure.

Twice today I saw a BBC reporter interviewing a union leader who said that the financial mess that we are in was caused by greedy bankers and those are the ones who should be made to pay and not the working class man.  Twice the reporter failed to challenge him.  These people must love it.  They know they have a chance to say anything they like to a huge audience and nobody will gainsay them.

There are two situations here and though they interact they do need to be separated in your mind.  The budget deficit is caused by the government, and in this case, specifically by the Labour government.  They have spent more than they received in income over a long period and this is called the deficit.   The cumulative deficit has increased the national debt to the level where when it has occurred in the past the interest payments could not be met by the country and it has gone into default over its debts.  The deficit and the debt have been further compounded in their effects by the PFI which is just a mechanism to spend money in the future now.  Today’s budget cuts are about rectifying that problem and reducing the time that our children will have to spend paying off our debts.

The credit crunch came because banks lent a lot of money at high levels of risk which were defaulted on.   This caused the banks to go bankrupt which was only prevented from having dire effects by central governments all over the world putting money into those banks to save them.  In this country the reason the banks took those risks was because they could, and the reason they could was because the Labour government had introduced a system of monitoring and control that was deficient.  The majority of the loans that were defaulted on were loans to enable people to by their own homes.  Good social justice.

As I said in my previous blog we are lucky that the credit crunch came along because it put an end to the profligacy of the government.  It did not cause the problem.

That is not the end of it.  Unfortunately the money-grabbing banks are owned by you and me.  They also are a sector of UK ‘industry’ that has been contributing taxes to this country at huge rates for many years and employing a lot of people.  I’m sure I’ve got an old shotgun in the loft.  All I need to do now is find my foot.

It is obvious: we have a free press, which is just about what it is worth a lot of the time.

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How lucky was that?

Posted by chrisrick13 on October 19, 2010

It is obvious: tomorrow is the beginning of the end.

I watched ‘Have I Got News For You’ last week.  There was wry comment on saving £1bn with benefit cuts and some irritating twerp of a woman said something like: “and these are the people sending £12bn on a fortnight of sport in two years time”.  I tried to reach through the screen to strangle her but could not make it.  It is wrong in so many ways and is the kind of comment that needs to be continually challenged but all so often just slides by.

By luck or good judgement the economy that the Labour party inherited was in good shape.  Let’s be uncharitable and say it was luck.  Roll forward 10 years and there is an economy with a lot of debt and every year the government is spending much more than it receives.  A lot of future spending has been brought forward through the PFI and mechanisms have been put in place to make reducing the spending very difficult.

A course had been set that was near un-changeable.  Then along comes the credit-crunch and the state of the economy is exposed.  Things look bad and Labour fails to retain power in the election.  It was a close run thing…more luck?

Where were we?  As individuals and as a nation we had spent more than we earned over a long period.  The deficit was so high that without action we were going to reach that magic debt level where default was inevitable.  The markets effectively gave the UK a choice: do horrible things to yourselves or we’ll do even worse to you.

Indeed the Labour party had planned to reduce the deficit to zero while letting the debt double.  Be well aware that we are only as a nation lurching towards trying to spend less than we earn.  Removing the debts and the burden of servicing those debts are for another day and for our children…the ones with huge university debts to pay.  The politicians only started to talk about this because of the credit-crunch.  Without that there would have been more years of overspending to put us in a hole too deep ever to climb out of.

Now the Conservatives are about to start cutting spending at a rate that still allows the debt to increase by 50% on the way to reducing the deficit to zero.  The hope is that with an expanding economy the cuts will not hurt too much as more people are sucked into employment.  An attempt at a balance is being made.  The Labour party has put its bets on that not happening and backed another horse.  Should the Conservatives pull it off the Labour party will look very silly.  (Does anyone remember ‘no more boom and bust’?)

So much of our success as a nation over the next few years relies on us making more stuff and selling it to ‘Johnny-Foreigner’.  We will be attempting this at a time that Johnny-Foreigner is not buying as he is pretty well trying to do the same thing to us.

It is obvious: tomorrow is the beginning of the end of fooling ourselves and the start of dreadful reality.

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Local Hero (1)

Posted by chrisrick13 on October 17, 2010

It is obvious: there are a lot of people who have a firm grasp on reality.

I subscribe to PC Pro magazine.  Recommended by a good friend, it really is excellent.  When it arrives I rip the cover off, shred the address label, shake out the advertising inserts into my paper recycler bin, and go and sit on the loo.  I often sit there until my legs hurt.  When I am done (not the magazine) I throw it in one of the boxes that holds bathroom junk.  Next time I am on the loo I can just reach it and read some more.  By the end of the month I have read and re-read all of it.  On top of all the technical stuff there are four or five gems in there: the technical people write columns.  I like Dick Pountain his view on things often coincides with mine, the editor always has something good to say.  All of them always make me think.

Step forward Jon Honeyball.  At the back he writes wry comment on some PC related topic every month.  The articles are gems amongst gems, but this month he cleared a very high bar by a couple of meters.

He tackled two topics with a fearlessness I wished I could match.  I will not say much about the article.  You have to go and read it.  However he did quote Brian Cox and I will summarise that quote: we know everything theoretical about fusion, to make it happen is only an engineering problem, given that it will solve so many problems for the human race I cannot understand why it has not even been seriously tackled.

We have an energy problem.  Not that we don’t have enough, because the sun throws huge amounts at us every day.  It is just that it is not available in useful forms for us.  We have chosen to use energy today that arrived from the sun millions of years ago, which has been stored underground, and release it into the atmosphere.  Given that the energy arriving pretty much balances against the energy leaving the planet, if we release stored energy things are likely to get hotter, at least on a temporary basis geologically speaking.  Not to worry because oil will run out soon enough.

And that ties in with my earlier blogs.  Why are we trying to give degrees to 45% of the population when 40 years ago it was 5%?  We need to find those thinkers, educate them, sit them in ivory towers and let them get on with solving problems.  We need to educate and train a bunch of doers who can take those ideas and exploit them.  That leaves the rest of us to get on with building and running a society that the human race can be proud of.

Take your bow Jon Honeyball – you say it so much better than I can.

It is obvious: there are a lot of people who have a firm grasp on reality and they seem to get heard a lot less than those that don’t.

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Education, education, education

Posted by chrisrick13 on October 15, 2010

It is obvious: education is essential.

When I got my degree only 5% of the population had degrees.  Someone with a degree was a bit special.  They were also rare.

I think that degrees were elitist in the sense that you had to be intelligent enough in certain ways to get one.  I imagine that a smaller number of people made it to become plumbers.  That a person with a degree had a higher status than a rarer plumber in a society was commentary on the society not on the people.

I come from a middle class family.  Not poor but certainly not rich.  I was awarded about a 50% grant.  My father made the rest up to the full amount of the grant.  They also housed and fed me during holidays for no cost.  In the summer I worked all 13 weeks of the holiday.  I started with a motorbike and not much money in the bank.  I finished with money in the bank, a car and a decent stereo.  I had also processed a lot of beer through my internal systems.

There certainly were poor people who did not go to university because of money issues.  But they were boundary cases.  I no longer concern myself with boundary cases.

But there were plenty of people who did not even attempt to get degrees.  Some did HND/OND or the like.  Many did apprenticeships.  Most people found things they wanted to do and acquired the appropriate education OR training.

When I came out of university with my degree, companies were interested in talking to me to see if I could be of benefit to them.  It was worthwhile interviewing graduates, there were not many of them and there was the further filter that could be applied of grade levels.  Today 45% of school leavers get a degree.  As an employer I have to look at 9 times as many people as when I qualified to find a potential employee.  That is costly.  Also as an employer if I need a technician I have to interview the same multiplicity of people and try to separate the engineers from the technicians.  Most of the people have no idea if they are an engineer or a technician.

I have written before that you have to be in the club and get a degree to even be considered for a job, the most useful filter being to reject those without degrees.  To get into that club not only do you have to complete the degree you have to saddle yourself with a lot of debt.

Nearly 50% of children today go to university and get a degree.  They are poorly served with raised expectations of the value of their degree almost the inverse of employers’ valuation of it.  They have debts that they can safely ignore as they don’t have a job.  How many people do you see writing the like of:  Chris Rick BSc (Hons) as I proudly did 40 years ago?

I’m thinking of re-training not re-educating.  I quite fancy the very first job that caught my eye many years ago: mastic asphalt spreader.

It is obvious: education is essential, almost as important as training.

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Who Pays?

Posted by chrisrick13 on October 15, 2010

It is obvious: we have to suffer.

For the last 10+ years as individuals and as a nation we have spent more than we have got.  Indeed the Labour government brought forward a lot of future spending so that whoever followed them would have little room for manoeuvre.  The only reason Brown survived so long was that the party needed someone to lead them into defeat who could be quickly dropped to give them a chance of blaming the inheritors and getting back into power when things were better.  There are two options: 1 we can suffer the pain under our own control, 2 we can do nothing and have the same thing happen controlled by external forces.  If option 2 is taken the pain is likely to be longer and deeper.  At least we will be able to blame foreigners.

In the meantime the Conservative party is planning cuts but trying to tell everyone that there will be no visible pain.  Of course there will.  There will be much public gnashing of teeth and wailing.  The first person to die because an ambulance did not arrive or a police car could not be found to respond will cause huge headlines.

Who will suffer?  Clearly the have-nots cannot pay as they have nothing.  The amount they receive can be reduced, but not much.  The rich have plenty.  There are not that many of them and they have the resources to dodge and weave.  They will contribute plenty but as a percentage not much.

That leaves you and me: the people in the middle.  We will contribute in full and then some, either directly or indirectly.  In particular those who have not over-spent and saved will be hardest hit.  A large number of people who have been sensible with their own expenses and who did not vote Labour!  They can truly say that they were never part of this problem but they will pay.  The ones who individually over-spent will suffer but they had a good ride that will now, essentially, be for free.

What do you do if you have assets and a job and spend less than you earn each month?  Huge change is coming and all of us are poor at handling change.  If you have any good ideas I’d like to hear them.

It is obvious: we have to suffer and there is an ‘I’ in ‘we’.

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Trust me I’m a…

Posted by chrisrick13 on October 12, 2010

It is obvious: saving for your retirement is a good thing.

Give me lots of money every month over 30+ years and at the end I’ll give you money every month until you die…honest.  Say the pension companies.

You can put the money into your retirement fund in one economic era and take it out in another.  Say that you start your pension at 20 and start to take it at 60.  Then for every £100,000 you will get back about 5% if it is inflation proofed.  The pension company will be able to pay the pension for 22 years before you die – on average.  The actuaries have it well worked out.  In between there is no consideration of what inflation will do to that pension.  You are taking a huge risk.

What have you done with a pension?  You have taken income and saved it to spend later.  You have decided to work for 40 years and receive and spend your income over 60.  The pension companies just look after your money and keep you from temptation.  Don’t forget that you don’t work for your first 20 years due to your parents’ generosity, the same generosity that you will extend to your children.

Along the way the company has been taking 1% of your fund every year for managing your money with no requirement to perform to any level at all.  The only check is if you are astute enough to look and realise your fund is performing poorly.  Then they will take at least 5 year’s fees off you to move the fund to someone doing better.

One of the key things about pension funds is that you put a lot of money in early.  This is just at the time you are trying to build (and buy) a home and raise a family and have no money to spare.

There is one asset that you have when you enter the world as a working person, and that is an education and training.  This enables you to get a job and maximise your income.  After that start the rest is up to you.

Pension companies are also averagers.  You don’t have to worry about living until you are 100 because the pension company will pay…if it will survive 80 years.  This is why you might build up a pension pot of £1m, take one payment of £5,000, die and the pension company will simply say ‘thankyou’.

If you don’t really trust a pension company and consider their offers to be poor (and they are) what can you do?  I have two strategies.

1)  Spend your money and enjoy it.  At the very time you have little of it to spare you are in good physical shape to take best advantage of it.  When you are 60 you might have plenty of money and arthritis so bad you can barely get out of your chair.  When you retire throw yourself on the mercy of the state and live in your memories.  Plenty of people are doing this and not only entering retirement with nothing but retiring with debts there is no way that they can pay off.  This strategy has much merit.

2)  Invest wisely during your working years.  How to invest?  Spend your money but train and educate yourself in skills that are in demand.  This is easy to do ahead of the curve.  Then when you ‘retire’ all you really do is work less.  Your retirement is not at the whim of the economic state of the country or the world.  You will receive your ‘pension’ at the current market rate.  The money you need to live on is much less than when you were raising a family and buying things, including a house.  Spend 6 months working over the winter, have 6 months holiday over the summer.

I might not be well enough, you might say.  However I think the health bet is much better than the economy bet.  Annuity rates have halved over the last 10 years.  Many people have made an extra 10 years of pension payment to see their pension halved as a result.

There are good strategies to get through economic woes and plan for a future and a pension is not one of them.

It is obvious: saving for your retirement is a good thing…for the pension companies.

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The ministry of bad ideas.

Posted by chrisrick13 on October 10, 2010

It is obvious: the age of miracles is not past.

How many times have I moaned about the effort dealing with boundary conditions.  Huge efforts are expended for only a small fraction of the cases and still many are missed.  The Labour government was, and always will be, obsessed with boundary conditions.  Not so the Conservative party it would seem.

To my amazement the new regulations on child benefit have been changed to reduce that received by high earners – people who do not need it.  An obvious boundary case has been recognised and ignored.  Obviously the press has made a big play of it.  Interestingly the Labour party has not made much mention.

So the system remains simple. Just one question has to be answered and the decision is made.  It is also so simple that if the government had decent systems in place the question could be asked without any human intervention.

The only thing missing is the need for a large and efficient centralised mechanism to handle all problems efficiently, quickly and consistently.

But what of those people who earn enough to lose the benefit.  Today they are caught.  It is simple and obvious.  What about next year or the year after.  I have mentioned it and will mention it again.  We are mostly rational and do make appropriate responses to external stimuli.  People will take actions to move themselves back into benefit reception where they are just out.  People who are more out might just make efforts to move themselves even further away.  An appropriate equilibrium will be reached.  Let the general population spend the effort on moving around the boundary – they have the time, energy and enthusiasm.  Let the government have a simple rule to apply at low cost, and, if they invest in information systems, apply at zero cost.

Could this be the first of many moves to simplify…everything?  Reduce government’s wasted billions on boundary cases.

It is obvious: the age of miracles is not past, but it has not arrived just yet either.

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