One of the themes endlessly repeated by property bulls and vested interests is that rising household incomes will "underpin" the market, and that a crash will be avoided because incomes will catch up with HPI.

This argument is, for example, used by almost all commentators in the BBC 2005 HPI Forecast

The truth is that real household disposable income is not rising, and if anything is falling and will fall further. My theory is supported, at this stage, by anecdotal evidence only, but here it is:

- I hear from many colleages in the City that there have been little or no pay rises in the past couple of years. In fact, a number of the biggest law firms have reduced salaries.

- There will be few City bonuses this year, and those that are paid are hit by the weak dollar

- More importantly, household expenses are rising fast, resulting in a reduction of net disposable income:

- taxes are rising, and there will be more tax rises after the next election
- council taxes rising way above inflation
- oil price rising, leading to higher petrol prices and higher prices for goods
dependent on oil
- utility bills rising
- Fares rising

- Long term, salaries in the Western Hemisphere in general will come under pressure, as emerging economies such as India and China rise. Companies will put their workforce and trade unions under pressure to agree to wage freezes or cuts or face redundancy as a result of relocation of the business to another country.


The rising household incomes is a vested interest myth. People will have less money in their pockets next year and in years to come.

Agreed. We are sick of reading about the boom in house prices these last few years. I can't remember a single story about booming wages (Chief Executives are an exception unfortunately).

Has been a fallacy for quite a few years not only in the City. A friend of mine working for a very big retailer bought a three bed semi thirty years ago, his son now doing the same job cannot afford to rent a decent property. Well you must give the shareholders more and more each year of the profits.

Maybe a higher rate of taxation on dividends will do the trick.

As I've said before this whole debate in mainstream in the US - the 'Destruction of the Middle Class'.

It means people that have seen their well paid, or at least living wage, jobs replaced by McJobs and their cost of living soar. Nafta, gloablisation, corporate greed, downsizing, deskilling. etc. have all taken their toll.

And it's not a temporary process that can be reversed in the next upturn. Sociologists first starting writing about the generations that had it worse than their parents in the mid-90s, where corporations implored workers to increase productivity, made huge profits, then sacked thousands. It was no longer a problem of upturn, downturn, but the obvious outcome of global neoliberalism.

I think eventually we will have a small minority of "leader/management" types making millions (CEO's, fund managers, City bigshots, bankers, etc) and then a vast underclass of people on poverty wages. What am I talking about? We have that already!

If you want to make money then start your own company. I did.

(And no, it is not BTL - although if I had half a brain 5 years ago I would have bought 5 terraced crap holes, rented them and sold them by now!)

That was the reason why Thatcher destroyed the unions in the early eighties, to give the corporations the green light.

Now lets have all you union bashers, remember Jack Dash, Red Robbo, bodies piled up in mortuaries, rubbish piled in the streets etc etc. Yes some unions needed reforming and maybe a couple also today, but to destroy the majority.
What do the workers do today, turn their bl**dy cheeks.

Right you eletist snobs let have you.



So did I, and paid my employee a good salary, are you suggesting the entire workforce become self employed. Well the country will soon come to a standstill.

Excellent post, BP. I agree, real income is not rising at all, for all the reasons you mention. People's bread and butter expenses has increased well above the official rate of inflation.

And with forecast GDP being trimmed for 2005, you just know that thieving Gordon Brown will whack us all with more stealth taxes over NuLab's 3rd term. The thought that of half my income goes into the treasury coffers makes me sick.

The official stats can be very misleading - average salaries skewed by earnings/bonuses of top earners (the wage gap IS rising), indices that only take account of average earnings for full time employees as more and more are put on short term/part time jobs which can be shed as fast as they are created.

Bottom line is that the top 10% may spend a lot of their earnings in the economy, but most of the other 90% spend nearly all their earnings. Long term this in itself will choke up consumer spending levels - let alone the longer term effect of demographics. The combination of globalisation/demographics is going to be withering.

Ah, but you forgot the percentage of your earnings he passes on to the EU to finance the corrupt gravy train.

Hmm, there seems to be two main whinges:

1) Globalisation. We can stop this, but it will involve having some sort of empire to get the raw materials we need. If we care at all about the development of other countries then we need to persist with a free market, and do what we can to encourage stable, accountable governments.

As certain goods we import become cheaper, we will need to compete with high quality and higher tech goods. Unfortunately, our manufacturing industry is in the pits, for reasons already discussed elsewher on this forum. I would be interested in learning more from the tech boys how we might address this!

2) General poor quality of life in the UK. "New" Labour have taxed a number of things, including pensions, while allowing council taxes to go up at a crazy rate. It's classic jobs for the boys stuff, at the expense of the wider economy. We either embrace this brave socialist dawn where everyone will have a degree and a job, regardless of the quality of such jobs or degree, or swallow our pride and vote Tory.

RichM, the UK should not even have a manufacturing industry at all. Do not enter an ar5se-kicking contest with a porcupine: this is the equivalent of us trying to compete with China, India etc in the lower-down-the-value chain industries, ie manufacturing, etc. China is the workshop of the world now, and we should acknowledge that. Where the UK can compete is in business services, law, accounting, management, R&D, cutting edge of science, etc. Ideas, not products.

zzg.

It doesn't work like that - the R&D will go together with the production, you need skills all the way up the food/development chain. Chna are training 10,000's/100,000's of engineers a year - they want it all. Once they have the foothold, the technology, the infrastructure and the skills they will turn on the inward investment partners and start competing with them head on.

At that point in time the the need for business services/accountancy/etc then drops because there aren't the companies to serve and all those services can be catered for quite easily with their own skilled population/companies.

Fair enough, I remeber that much from our previous examination of the topic. I think I would include much of that in the process of "manufacturing". I guess there will only be so many jobs in actual aircraft engine production, for example.

Do we do as much of the "ideas" and manufacturing design as we might, however? And how comes Germany has a 120 billion trade surplus? (I recall that figure being quoted somewhere here before)

RichM,

Rolls Royce have already threatened to shift their R&D to China.

Germany has a trade surplus becuase banks in Germany invest in their future and not piles of bricks. Your ave3rage bank manager in the UK 9thast's if you can ever get to see one now they have become virutualised) knows sweet FA about business and cares about it a little less - unless of course you want to borrow money at some extortionate rate with personal possessions/house as collateral - that they can understand.

At the last announcement NAE is 4.4% but this includes 2004 City bonuses (not repeated 2005) public sector increases (many will be sacked from 2006), equities will do badly next year so the top top earners will not get their share related bonuses and the City -well they'll all eb crying into their spilt champers... poor things.

NAE will fall from more or less here on in - while taxes (national and local) and utilities etc are rising...

Gulp!

Yes, it is becomnig increasingly clear that the housing market obsession will do us in...

RichM,

It seems to have done my typing in, that's for sure.

at leest your tiping is betta than my speling

TRUE... But the fall in incomes is mostly Hidden.

Normally, we would expect to see any FALL in real incomes show up as a fairly-immediate decline in consumer spending, and then, the weaker economy would concern many, and actions would be taken. This has not happened. Spending has been maintained. The economy has remained robust. How?

I think you know the answer.... An increase in DEBT.
The rise in House Prices, and easily availability of debt, has allowed homeowners to continue spending, by gearing up their properties. This "other" road to wealth-creation, has enabled so many in our economy to continue to improve their living standards, despite a fall in net spendable income. In effect, "spendable" mortgage borrowing, has replaced and supplemented lost spendable income. And since this spend has been supported by an increase in wealth (through higher property prices), it looks reasonable and prudent to those increasing their spending.

There are two problems:
1/ This as created a society of Haves and Have-nots (And maybe: Chavs and Chavs-not, as well). The Haves, are those with homes. They have seen their wealth increase effortlessly. By simply owning a property, some have seen their wealth increase by £100 or £200 per day, and some, the BTL-brigade by much more. If wealth increases so simply, why not spend some. This has helped to inspire the poor-taste, cheap-glamour-to-everypleb explosion of Chav-istic lifestyle that we have seen everywhere. And of course, if the neighborhood Jones are out over-consuming, many sheeplike-Chavs copy. So many Have-nots, have joined the Chav-consumption boom, by taking out expensive credit-card debt. So the house-owning semi-prudent Chavs/Haves have been joined by the debt-building imprudent Chav/Have-nots. Result: the Labour spending boom of the last few years. ("Labour" is so incredibly ironic in this context, isnt it?)

2/ The process will not go on forever. Houseprices can fall, and now are falling in most parts of the UK. And cheap debt can become less-cheap. At that point, effortless increases in wealth become effortless reductions in wealth. And the default situation is a dangerous vicious cycle of falling housing equity, and maybe, rising floating rate debt costs. No wonder spending is down this Christmas. Some may react by selling and renting. But it is too late for most, who are trapped without knowing it.

And 5 million lemmings will control the direction of the economy as 3 million floating voters decide elections.

Dr Bub is right. The impoverishment of the people is not visible because it has been replaced by debt.

The poor are forced to buy essentials on dreadful credit deals just to get by. In America 'working poor experience' books are now almost a distinct genre of non-fiction, with books like Nickled and Dimed demonstrated how various 'welfare to work' policies have merely replaced depenency for cruel slavery, with people working two or three jobs.

Polly Toynbe wrote Hard Times, doing the same thing for the British setting. It's important to note the rise of the working poor in increasingly neoliberal economies, as a growing number of people on less than a living wage will obviously add massively to consumer debt.

Secondly, there's the impoverishment of the middle class. I detect that there's a a feeling amoung middle class people that their lifestyles must be maintained at all costs, rather than admitting the cost of living and tax burden has increased and scaling back on their spending.

It's something along the lines of, 'I work a crappy high-stress soul-numbing job where I seem to run my whole department for 25k and I deserve some treats to compensate me'.

Those who bought house pre-boom, had an seemingly easy source of free cahs via MEW. We know 30k people that live in what are now millionaires rows. It's a case of 'Stuff that my pay's been frozen in real terms for years, I've got my pot of gold'.

Among younger professionals there's a split between savers and fatalists. Saver either predict a turnaround in the housing market or at least believe that anything other than saving will mean shooting themselves in the foot.

Fatalists have become downbeat about their ability to significantly increase their incomes to keep pace with the housing market and have decided to live the studenty shared house lifestyle and buy consumer drivel. I'm sure we all know there 20 or 30 something living at home or a shared houses with high-end mobile phones, laptops, Xboxes, mini-camcorders and iPods coming out of every orifice.

Those with what would have been considered reasonable incomes pre-boom, will probably have reasonable incomes again. That said, the housing boom, the increase in the working poor and fiddled unemployment stats, and the move towards evermore extremist neoliberal economics may, after a devestating fallout, cause people to demand a more progressive society going forward. This, and a more balanced economy based on something other than shuffling easy cash around so people can buy imported sweatshop tat and then charge them huge interest for the priviledge.

"The impoverishment of the people is not visible because it has been replaced by debt.
The poor are forced to buy essentials on dreadful credit deals just to get by"

Hmmm...
"Forced"??
By whom.
"Essentials"
Says whom.

Consider China.
Much Less income, Wealth increasing. Why?

They work very hard. Spend very differently.
The culture is different. Their goals are different.
If we could infect them with the Chav virus. It would all change:

Funny if you've not seen it (flash download)...

http://www.cecimoz.co.uk/flashpanel/Chavs.htm

"In me burberr-ay, in me burberr-ay..."

Are you advocating the Chinese Capitalism is a model we should aspire to? Are the Chinse heroic for living in dorms attached to factories working unbelievable hours to make tat? Is it good that a middle-class elite core buy Mercs and Dell laptops while the bast majority do not share in the economic success.

Funnily enough authoritarian state with Stasi-like controls of civil liberty combined with monopoly captial seems to be the general model for the US and UK at the moment.

Next there'll be politicians on fact finding missions to China to try and work out how these ideas can best be exploited.

DrBub. You really should read Hard Times. I think you are getting mixed up with gauche charmless Chavs that have basically thatcherite values and the poor.

CO&B,

Your:
"I detect that there's a a feeling amoung middle class people that their lifestyles must be maintained at all costs, rather than admitting the cost of living and tax burden has increased and scaling back on their spending.

It's something along the lines of, 'I work a crappy high-stress soul-numbing job where I seem to run my whole department for 25k and I deserve some treats to compensate me'."

I AGREE.
I bought a mobile phone yesterday. Because my old one was getting tired.
Unusually for me, I decided to buy the latest thing, a 3G Motorola e1000.

There were various discounts, so I thought, why not?
I can easily afford the £35/month, and with the discounts, it is about £26,
with 750 any network minutes. It was all those minutes that got me.

WHAT SURPRISED...
was the advertising and marketing of the phone.
This thing is being pushed to teenagers, and 20-somethings.

Isnt this alot of money for these no-earning and low-earning people?
Are parents spoiling their kids so much to hand them these toys.
Surely all the Music being offered will put a big hole in their parents'
bank accounts. No wonder we have so many irresponsible Chavs
walking around. They are spoiled and trained by their stupid parents.
Same as they train them to be alcoholics, by alcoholic example.

I feel angry (and worried) when I think of it.

CO&B
Your:
"Are you advocating the Chinese Capitalism is a model we should aspire to?
Are the Chinse heroic for living in dorms attached to factories working unbelievable hours to make tat?"

Of course not.
But if our culture can do no better with its greater wealth than create
Chavs, then I wonder. I would have thought we could have more
high culture, rather than the low culture than media is driving us towards.

Do we have to get driven down to the poverty level to start all over again?
That is where we may be headed when this debt bubble bursts

- -

Your:
"gauche charmless Chavs that have basically thatcherite values "
NO. They are the ultimate expression of lazy New Labour IMO.
Remember Tony Blair's "Cool Britannia" days? The public's infatuation
with Trash Spice and Becks goes back to those times, not Thatcher days

I wonder why so many people do upgrade their mobiles.

If it's broken then naturally, but consumers get coerced into buying the latest model and trashing their old one which is still in perfect working order. I'm still using a Nokia 3210, why? It still works very well and does everything I want (phone calls and text). I fail to see the need for cameras, video recording polyphonic ringtones etc etc

What I have noticed is that virtually everyone I see has a better, more expensive phone than me - students, old people etc.

I suspect that the masses are like putty in the advertisers hands. Spending money for the hell of it.

I sincerely hope you're joking Charlie, taxing of dividends is one of the reasons we got into this mess in the first place, as it has disincentivised investment in shares which in turn helped fuel the property bubble.

I think alot of contracts entitle you to a free upgrade these days. However, each phone seems to have more gadgets attached tempting you into wasting more money.

I have a pay as you go and have proudly spent £13 this year with no rental. I know people who have these monthly contracts with loads of free minutes which they don't use up. Consequently, when I'm out with them they spend a fair amount of time dialing up onto the internet with them just to use them up. They're tied into the contract for a year. Perhaps I should get some new friends

Here's what 3 wants to sell to me:

Select
Ø Select one of these categories:

· Music videos — the latest music videos

· Most downloaded — check out who’s number one

· MTV — music news, what’s hot, best of MTV (including Jackass clips), MTV live lounge and free tasters

· UK chart ringtunes — this takes you to Tunes & Pix where you can download new ringtunes

· Pete Tong’s Fast Trax — top tunes from the dj box, plus reviews by the man himself

· Zane Lowe’s Revolution — music presenter Zane Lowe doing what he does best

· Gig tickets — check out who’s coming to town

Ø You’ll see the cost on your screen

Ø Select the clip you want


- -

Ugh.
What is this stuff? I never heard of any of these people.
And I have no interest in this music. Who buys alll this garbage?
I suspect that it is spoiled teenagers whose Pay-Rents pay for it.

I wouldn't count on it.




China is already being infected with the consumer virus DrB. In 20 years time the Chinese will be just as chavvy as the UK has become. And the marketing and advertising industries will rejoice.



Apparently the under-16s have one of the largest spending powers of any demographic age group in the UK. Which is news to me, as they're not allowed to work by law. Now where is the money coming from........?



Correct.



The whole raison d'etre of advertising is to make people want things they don't need. And it has succeeded beyond their wildest fantasies.



That's because there isn't one.



Your suspicion is correct.



Pay-rents. Never a truer word (and parents are stupid to do so).

the trouble is, everyone has a mobile now so the manufacturers are wracking their brains thinking of new gimmicks to keep the production line going.

I find it astonishing that ringtones are so popular. Surely if you like a song you go and buy the CD rather than pay £1 to download some polyphonic jangle?

"Pay-rents. Never a truer word (and parents are stupid to do so)."

And once the Pay-Rents are done, they expect the Stupid government
to go on paying for them // That's the rest of us, Ladies & Gents


- - -

BP is right...
In the US, real pay was down 0.4% in the latest reporting period
(I just heard this on FNN)

What is a chav?

Lucky,
Here's the answer:
http://www.housepricecrash.co.uk/forum/ind...?showtopic=3638

and another:
http://www.ChavScum.co.uk

someone with no quals, a baseball cap, spots, fast car, jewellery, spits, drinks special brew, plays RnB or Rap music out the windows at 140dB, has 6 illegitimate kids and lives in the roughest part of town (their car is worht more than their house)

This is the jist of an excellent book I read called Growth Fetish:

http://www.amazon.co.uk/exec/obidos/ASIN/0...5827379-7378251

Plenty of Chavs own property, I believe

I can second that Growth Fetish is a great read, not so much because it says anything new but it's a very clear, readable introduction to post-growth economics and why it would be a good thing for most people.

As a green, over the years you have to put up with obtuse meaningless remarks like, 'Well, would you want to live in a cave?/But you have a computer!, etc.' and I think this book puts across the post-growth ideas in a non-dogmatic way.

You often meet 'old school tories' that have nothing but disdain for what neoliberal globalism has brought about culturally, socially, economically, environmentally - modern politics has moved far to the right of many who are conservative with a small 'c'. I always tell them, 'You do know you're spouting lots of green ideas dontcha?'.

Seriously it was a little joke Yonmon.

I thought we all know without further debate the real reasons for the massive HPI.
IMHO the markets and share investors have not been the cause.
If a company increases production or sales producing more profit, by all means pay higher dividends and the employees a fair pay rise.
What really rattles me is when that company sees stagnant or falling profits, and increases those profits by shedding labour to keep the shareholders happy.
What is best for a stable economy, two pence on the dividends or two jobs.
Anyone including yourself could be the next victim.

I believe Winston Churchill one said responsible employers should expand, produce good profits for the shareholders, pay fair wages, and create new employment. If he fails in this he is not fit to be an employer.

How things have changed.

Nowadays employers seek profit and profit only. Perhaps they always have done but we just didn't notice. The company seeks to cut wage costs, reduce employment (payrolls). Look at the stock market; when any company sacks large numbers of workers their share price rises.

Only Me... you are so, so right. I think of the top end jobs as being like the top end of a food chain, the big fish need some littler fish to eat and so on ad infinitum...

The high-end intellectual economy might work in a low population density country but definitely not in a country with a large urban centered population.

Its a kind of mild racist arrogance for us to assume that we will have a monopoly on creative and intellectual capital in the future. And its a myth that has been spread for the last few years by the neoliberal thinktanks.

Mind you, I think that I believed it for quite a while. While I expected the effects of globalisation I have been incredibly surprised by its rapidity... I think that the slowdown caused by the dotcom crash has hugely contributed to the speed of transnational movement of capital in an attempt to chase shareholder value in whatever way is possible.

I thought that we would be where we are now in about 2015!