Food banks, payday loans and the housing bubble: Britain's Wealth Delusion

George Osborne and David Cameron are feeling quite pleased with their economic policy these days, now that Britain's economy is showing signs of clear growth. The Conservatives are now able to claim, using figures to back them up, that the economy is improving.

Yes, things are improving, at least on the surface. Unemployment is down. GDP is up. Housing prices are up. But at the same time, credit consumption is escalating, and living standards are at their lowest for decades. Also, the lack of investment by banks into businesses is becoming the norm. If this is a recovery for the country, why doesn't it feel like it?

Britain is being run like a developing country

The basic answer to this question is that because the government has learned nothing from the financial crisis. As Adtiya Chakrabortty makes clear in this excellent article, Britain's economic model is no different from any in the developing world. The Conservatives are giving living proof to the concept that it is possible to have increasing GDP in a country at the same time as a decreasing standard of living.

This is the frightening reality for many people in Britain. And here's why: GDP is a simple calculation of averages. If the wealth of the top quarter of earners (for example) has sky-rocketed, while the wealth of those in the bottom half has declined in real terms, you still get an increase in GDP. This is basic maths, but it also paints a distorted view, as any average sum can. So relying on GDP in this situation is not helpful to finding out the reality on the ground; in fact, it can be positively deceptive.

The Conservatives either are too dim to understand this basic point, too blinded by their own ideology to see through their delusions, or too indifferent to care.

I've mentioned before that Britain really is ran more like a corporation than a nation-state, and therefore the government is encouraged to see GDP as a simple number; shown to Britain's investors (shareholders) to boost UK PLC's "share price" in the world. The fact that UK PLC's "employees" (its electorate) are having their wages and living standards cut in real terms in order to achieve this is immaterial. The government only really sees the GDP figures. 

UK PLC also explains why the government is so keen on "fracking", an expansion in nuclear power, and expanding Heathrow. These things will all improve the country's "rating" in the world. Who cares if it's foreign companies that benefit most from it, at the expense of the actual electorate?

Yes, employment is up, but so what? What kind of jobs are they? Mostly low paid, part-time or temporary, and the idea of getting a stable job these days in The UK is laughable, unless you are in the top ranks of society. Many of the jobs created are in the service sector, where zero-hour contracts are becoming the norm.
In this way, the jobs market in The UK is also more and more resembling that in a developing country, where employment is too heavily dependent on unreliable and highly fickle service industries. The government encouraged young people to get degrees; so now we simply have low-paid service sector jobs filled with graduates. What's the use of that? These service industry jobs are the first to go when there is a downturn.

The wealth delusion

The "recovery" is in large part due to consumer spending. The country has yet to recover from the worst financial crisis since The Depression; much of the spending that's happening on the high street is simply either by eating in to more affluent people's savings, or getting by from month to month on payday loans, and adding even more to the dependence on credit. This is not a sane economic model: it is mass delusion.

This is a dangerously complacent attitude, because it simply suggests that many British people are too weak to face the reality: that many people in Britain are poor. If more and more people are using credit to survive, and are using food banks to survive, this means the country's economic model is broken. But nobody is willing to admit it. The truth hurts, and so people would rather live in an "Alice In Wongaland" view of reality. This is also a time where we are seeing a rise in diseases commonly associated with malnutrition in the developing world (rickets, for example).

The government meanwhile takes the view that food banks are a sign of the "Big Society" - or at least, Cameron does; Iain Duncan Smith seems to take a different view: that he'd prefer to pretend that the problem doesn't exist, and that he's certainly got nothing to do with it.
Calling food banks a sign of the "Big Society" is a sickening joke to those who really use them; the government is helping to create a problem (or at best, is doing nothing to reduce it), then praising people who come the rescue. "Food poverty" is the biggest sign yet that Britain, far from entering a real "recovery", is entering a new era of poverty unprecedented in modern times.

The government puts a great deal of stock in house prices, and George Osborne's "Help To Buy" scheme. Apart from the obvious inflationary dangers that this poses to the market (which are already apparent), Osborne himself admitted that the idea was to make people feel richer - so that they would vote the Tories back in again. So Osborne is openly acting in a cynical and irresponsible way towards the economy.

Not only do people now have much less disposable income to get a mortgage than ten years ago (Britain is fast becoming a nation of tenants), but interest rates are at historically-low rates. The only way is up. And when the rates do begin to climb in the coming years, the housing market will create a whole new generation of "negative equity" victims. 

Using housing prices as a marker of wealth, as the Tories do, is as useless as it is cynical. It is inflation in the value of property, nothing more. When the value in "your house" increases, it doesn't mean "you" are richer. If you you bought a house thirty years ago for £30,000, and it's now worth £200,000, you are not £170,000 richer. Why? Because all property in the market has increased by the same value. Unless you are selling a house outright (eg. after a restoration project), downsizing, or moving to a different country with a cheaper housing market, you are not gaining anything.

The obsession with property prices in another sign of Britain's wealth delusion.

Germany doesn't have a wealth delusion, because it's clear where its wealth comes from: manufacturing, and other sectors of the economy.

Britain's economic model is reliant on banking and the kindness of foreigners.