Taxi!

Jobs are constantly being created and destroyed in a free market. Its a continuous process, human labor being automated with the jobs being redeployed into some other line of work. There's also new business models that are spawn to challenge convention. Decades ago car workers didn't like the sound of automation so mobilised their unions to try and stop the progress of humanity. In countries like the UK they hampered innovation but they could never win. Germany for example embraced robotics during the 70's and 80's and eventually the UK car companies collapsed as they had fallen so far behind. Instead of maybe mild job redeployments it was a complete collapse of the industry. It would take foreign car companies to come into the UK until the jobs reappeared at which point the companies said "This is the way we make cars now".

The taxi business is rife for innovation. Black cabs have had it too easy for too long and entrepreneurial individuals have noticed there is room for competition. Applications such as Lyft and Uber are giving consumers and businesses increased choice of how to travel and generally lower the costs for us all. The concept is to use peoples cars as the taxis and lower the barriers of entry into the sector. Of course black cabs are not best pleased as their relative monopoly is being challenged. Is it the moral role of society to protect these jobs? Of course not, for if it was we would all still be living in caves. People got to where they are as the most dominant and prosperous species on the planet by constantly innovating and finding new way to do things more efficiently. 

During the industrial revolution the Luddites used to smash the factories that were popping up all over the country. Their logic? No one would have any jobs as the mills would do all the tasks many were used to doing manually. Instead what happened was a golden age in human history. Prior to this time, wealth had remained fairly static, then along came the industrial revolution and changed all that.

Those who abandoned the mills suffered. Those who embraced them, prospered. The West got ahead of everyone else because it embraced individualism, the challenge to authority and had the conditions for economic freedom.

In the long run Cabbies should embrace changes. They should adapt to the new methods and techniques to secure their jobs. If they don't then they will have to find new lines of work.

It won't be long until driver less cars will be a common sight and I suspect my daughter may never need to learn to drive if I decide to shell out for one. Taxi drivers won't even be required at this point as the automation continues. Should we be fearful? Would you fear much cheaper fees and a car tracking system all automated so it can efficiently send a car out to pick you up? The Taxi drivers will move into other lines of work; for the job destroyed ten more will be created. We don't need to protect jobs, in a true free market jobs are always abundant and we need to automate as many laborious tasks as we possibly can.

Ed Milliband asks for a 'Living Wage'

"You need a statutory minimum wage which is mandatory, but I think we need to go beyond that. We can call upon employers, local councils and others to do better than what’s legally required and pay the living wage ... And frankly, why are we doing this? Because justice and a belief in dignity at work says that people shouldn't be paid poverty pay if employers can afford to pay them a decent living wage. That’s why we’re going to be campaigning for it, and it’s going to be a central part of my leadership campaign as well"

Ed Milliband, proposing a 'living wage' of £7.16 an hour

Minimum wage. It sounds like a great idea. A free lunch for all, justice for the poor, increase peoples purchasing power. However it creates as many questions as it sets out to solve. What is a living wage? What level should a minimum wage be priced at? 10p an hour? £100 an hour? Could I argue that my wage is not adequate for my personal wants and desires? Is the pay of an Asian worker on less than a dollar a day a working wage? Was it fair that our ancestors had to send their Children to work from an early age often under dangerous and hazardous conditions? Was it fair that my Granddad left school at 15 and signed up for the second world war at 17, yet myself and my father enjoyed a University Education? What is fair? If we raised peoples wages, wouldn't prices just rise, justifying yet further increases to offset these rises? If its that easy to make people more prosperous why don't we just keep pushing this price ever higher.

When confronted with the issue of a minimum wage 99 people out of a 100 would immediately say it is a good thing. We see the initial policy, thinking that it increases peoples living standards. Of course the opposite is true, its price fixing, just like arguing that the price of bread is too high. When the government implements a policy of raising peoples wages it means that any job that could be done for that lower price has now gone. It makes outsourcing a job to China, or replacing the position of the person with technology that much more cost effective. Why do we have such high youth unemployment? Why have we got an ever growing underclass who are priced out of the employment market? If they were in reality to raise the price to over £7 an hour, this would be a disaster. This would not hurt the 'rich capitalists' it would hurt the very people it was intended to help, the poor and vulnerable among society.

A fundamental premise of economics is prices. Buyers desire a price as low as possible, sellers want a high price. A wage is a price. Workers (not just "working class workers", as the divisive term is used by the left, but ALL labour),  the seller, want as a high a wage as possible, the company, the buyer, wants to pay as low as possible. Market forces ensure equilibrium's are established. If too low a wage is offered then an employer will not be able to fill a position. Offer a dentist £10,000 and you are going to be looking for a very long time. The employee offers too high a wage for his/her particular services then no one will employ them, as other people exist that can do the job for less. 

Think of it like a consumer good, a wage is just a price. There is no exploitation taking place here, both the buyer and seller agree with each other a fair price. If the worker thinks the price is too low they are welcome to exit the agreement. I'm a real life example of such a concept. I have raised my wages 250% in the space of 5 years yet I am a member of no Union, nor do I use a minimum wage to achieve this. I use the market to determine what I am worth and thus accept the fair price I am offered.  

Price equilibrium's exist to measure an individuals productivity. In a true free market the wage you command is how productive you are. Now we may not think of David Beckham as very productive, he just has to open his mouth for us all to see this. However in reality, he is. He's a global sports icon that can shift millions of consumer based products for a company. The product he promotes could be pants, but many are sucked into short term marketing campaigns and fads. He draws support from all continents of the globe, increasing his clubs revenues. Why do think Real Madrid bought him? However if we were to all stop watching football, buying the products he advertised, Beckham would be worthless. No conspiracy, this is how markets work, prices, supply and demand. Beckham quite clearly offers millions of consumers around the world a product that they want. 

Its the same for all of us. Why does a Brain Surgeon get paid more than a shop assistant? Its the productivity. You can't pull Joe Bloggs off the street on minimum wage and ask him to get a tumour out of someones head. The shop assistant does not require the same specialisation, therefore there is a wider scope of labour that can perform the duty. Again you can take it further, there is only one David Beckham, rendering his services a monopoly.

'These companies are making millions, why can't they spare some money for the workers?'. Complex issues are never black and white. The idea that company profits enrich some wealthy parasite that creams off the workers labour - the 'real wealth producers' - is not true. Profits are a market price, a signal used to determine which companies can utilise and mobilise societies resources effectively and meet the needs of peoples demands. A profit tells private capital "Ok, we can meet peoples needs effectively, we need more resources to help society". It can go into a number of avenues, such as expanding operations. It more commonly goes into paying stock holders a dividend. I have a pension pot and I no doubt receive dividends from multinational company somewhere. Does that make me a wealthy individual who creams off societies resources? Of course not. Profit doesn't just sit idly for the rich, it is a price that helps us all. So long as it is genuine free market profits, not Government propped up monopolies such as the Banks at that moment.

The world doesn't owe you a living, you have to go out there and offer something to society. For those in real need, the free market can do a much better job in providing welfare for those in genuine need than the state. Can you imagine if we didn't tax our entrepreneurs half of what they are currently taxed? They already do a lot of charity work but it would no doubt be a lot more. The competent who have proved themselves, rather than politicians with no such legitimacy, could provide help for those in need. For the majority of us, it would be offering what we could to society. No feeling sorry for ourselves, or wallowing in our own self pity of how we get 'screwed'. Get real. My Granddad fought a war during his teenage years while I got a world class education for practically free. Student fees? So what, I pay it as a tax, it gets cleared when I reach 50, and if I don't earn sufficient income at sometime in the future then they don't chase me and payments get reduced or suspended. Hardly a hardship. 

The left patronise the lower income people of this country, believing they are doing them a service by raising the minimum wage but all they are doing is taking further jobs away from them. Again a real life example. My Girlfriend worked in Bingo as a Student. Practically all the staff were on minimum wage. Every time the government raised this price management had to contemplate letting people go as their wage bill would rise. If they passed these costs onto the punters, then a drop in revenues would occur due to the higher Bingo prices and drop in customer numbers. It was a real headache, one that no doubt if raised to over £7 would cause a lot of issues for the business. Same in manufacturing, if the productivity of the worker is lower than the cost, the work goes over to China. 

Would raising the minimum wage to £7.12 solve the issue? Let me put it like this, did establishing a minimum wage when Labour came to power in 1997 solve the issue of a living wage? Has it been solved since through various increases down the years? It's an idiotic policy that appeals to people emotions over rational reasoning. Increase it to £10 - to £100 - it won't solve the living wage issue. Its the free markets reign over societies capital structure that solves the living wage issue.

Inflation - The Governments Free Lunch

"While our case has been aggravated by the illegal sanctions imposed by the Western powers, rising food prices are a world phenomenon because of the use of biofuel"

Zimbabwe's Finance Minister, Samuel Mumbengegwi 

Recent figures for inflation have been released for the UK yesterday and it doesn't make pretty reading for the Government. CPI up to an annualised rate of 3.7% with RPI standing at 5.3%. Again Mervyn King blames the increase on VAT, the fall in the pound or the rise in oil prices. Hate to break it to him but these are just symptoms not causes. The causes can be laid directly at the Governments monetary policy, that is printing money, record peacetime deficits and artificially low interest rates. Thats what he should have told the new Chancellor George Osbourne. Scepticism amongst the city seemed to be the other part of the story, that is they are not buying the above reasons anymore. How long will it be before the general public cottons on that inflation is going to be a real problem going forward. The only way inflation is going to come down, as the Governer would have us believe, is if the government stops printing money, hikes interest rates and gets their books in order. But none of this will occur.

Continued debates regarding which algorithm to use have resurfaced. RPI-X, RPI, RPI-Y? What about using a tool we all know works, the free market. Supply and Demand. Prices. But that would be all too easy. The Keynesian witch doctors couldn't promote their economic religion of the 20th Century. 

There are a lot of common myths surrounding inflation in most instances, the symptoms are portrayed as the causes. Symptoms such as unions, 'overheating', OPEC, speculators - the list goes on. In a nutshell inflation is actually created by making more money, its that simple. Zimbabwe hasn't got inflation because of their stock market or the Unions or OPEC, its got price problems because Robert Mugabe ran out of money and turned to a printing press instead of balancing the books. Of course he lists the same reasons as all governments do. Zimbabwe shut down their stock market recently by stating it was helping to cause runaway inflation. The best stock market in the world is there, along with the best housing market, gains we could only dream of. However there is a catch. The Zimbabwe dollar, in which these assets are valued, is worthless. Same policy as our current Governments are pursuing only with more moderation.

Excess Capacity? Now theres something Zimababwe knows about. But yet the well versed lines we are told is that we can't get inflation because of this excess capacity. People can't demand pay rises, again a symptom, because of this fact. When in history did a country sucumb to high rates on inflation when their economy was strong? Excess Capacity exacerbates inflation, it doesn't dampen it. So while the deflationist scream 'excess capacity', I say 'look at history' (Remember Stagflation?). Incorrect lessons are learnt, fallacies are drawn from history. By the same logic, Zimbabwe should have solved their inflation problem. I have been tracking events there from around 2006 when their inflation stood at a 'mere' 1,000-2,000%, and continuously there has been more and more slack in the economy but yet inflation has gone through the roof, it can't even be measured anymore. People stopped turning up to work because the price of the bus fare was more than they got paid at work. People get confused that the unemployment caused during Thatchers Policies in the early eighties helped dampen inflation when in fact all she stopped doing is spending money the Government didn't have and buying her way out of trouble like previous Governments had. She let market forces take over which lowed consumer prices, and let inefficient state entities fail. It wasn't excess capacity, it was a combination of market forces and the relative restraint of money creation.

Oil keeps going up and up. It does in Zimbabwe. So much so that they put price controls in place. Mugabe blamed oil speculators or OPEC, again the symptoms. It was caused in exactly the same manner as we have now, excessive monetary expansion. Supply and demand issues will occur at some point in the future as we hit peak, but not now. Global demand is weak and people are struggling to buy as much of it. So that price of £1.22 a litre in the UK, we can thank our MPC and our government. Not the oil companies as the Government would have you believe.

Unions or the lack of them. We won't get inflation because we don't have unions due to the wage price spiral they cause, again its a symptom. As more money gets created the publics demand for money becomes greater as it takes more money to buy the same goods and services. However pay demands can equally occur in the free market, for example people move jobs similar to India where they have greater inflation expectations as their Government is weak thus creates too much money. People can just as easily drive up their own wages. We will see more unions and strikes in the future, but don't confuse this with a cause of inflation. I disagree with the concept of unions but there is one point I agree with them, they don't cause inflation, they just play catch up to rising prices caused by weak incompetent Governments. Suggestions of public sector pay freezes does not bode well for future industrial relations, when inflation is on the rise.

In 1997 when Labour granted 'independence' to the BoE for controlling interest rates this was hailed in the city and by many economists, but I disagree. Their targets are still set by the Government. It's laughable that the BoE is independent with it's main remit to target inflation however this figure is now nearly twice as high as what they target, it's not even within their bounds. The 'recovery' or 'it will subside' are reasons given to not take action, but the bank doesn't have a remit on these issues. Its aim is to take steps once inflation goes outside its bounds of 1-3% that the Government dictates. So while Mervyn King and Co. sit on their hands it won't be long before the creditability of the central bank is called into question. A year ago the bank predicted that inflation would now be 0.7%. A 3% margin or error is quite large if you ask me. The record reads quite clearly - it didn't take until 2011 for inflation to rise above 1.2%.

Frustrated savers sit and wait, questioning the policies officials take. Of course its one great moral hazard and the Central Banks are masters at setting up future disasters. The reason savings rates are so low is because commercial banks can lend from central banks for virtually nothing. Unlike genuine savings (capital) this is just pure inflation, so why pay retail savers with real capital more than the central banks rate? The commercial banks can then take this money and lend it for the long term, a common trade is to borrow short term at 0.5% and take this money to buy long dated bonds, say 10 year gilts, which have a higher return (inflating the bond bubble). The difference becomes the profit, money for nothing. Of course the problem occurs when Central Banks have to raise rates. How will the banks deal with this sudden shock to funding? Bailout Mark II? Private Banks then lend to the public and the Government at higher rates because of inflation and default risks in the future. So unless the Government and Central Banks step into the place of private banks then they will never ultimately set market interest rates. 

Media types will have you believe that this is not a plan, that is to inflate away the debts, and its Central Banks believing that inflation will subside. Don't believe everything you read in the news, like I mentioned above there is a remit on the bank which they are quite clearly ignoring. Much damage will be done by trying to inflate, its not just a case that the prudent among society are punished to bailout the irresponsible. The prudent peoples savings erode, incentives are lost to save and capital begins to flee, into foreign assets or Precious Metals. Keynesian's would have you believe we have a liquidity problem, when it fact its a capital deficiency issue. If you have a printing press liquidity is never an issue, so by inflating all officials are doing is adding gasoline to the fire. It compounds the problem. I think people are aware something is not quite right with the monetary system, printing money, giving away free money, people are asking "isn't this what Banana Republics do?".

I warned that we can't devalue our way out of trouble, making the point that prices always catch up with you. The UK is now beginning to find this out. Companies and individuals get lazy but when prices come back to bite, suddenly that purchasing power has gone. Capital gets eroded, saving rates come under pressure as people's demand for money rises to buy the same goods for more - two building blocks for prosperity. Peoples inflation expectations grow. Capital becomes harder to form as prices rise and people struggle to forgo consumption. Company profit margins come under pressure. A vicious cycle can occur without action from a strong Government. Could we have a fall in inflation? In the short term I don't dispute this, when cuts are enacted we could have some slowdown but we won't go the distance and take our full dose. If we couldn't take the pain in 2008 why do you think our leaders will take it going forward with the economy in worse shape. 

There is only one trend and that is expect more inflation, but not the relative calm inflation we have seen over the previous decade. Over the new decade inflation will get out of control, the policy makers will go to far. With the same deflationary market forces relatively subdued it's going to get messy. Inflation, its historically the Government great free lunch.

"Inflationism, however, is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism and peace, so is inflationism part and parcel of imperialism, militarism, protectionism, statism and socialism."

Ludwig Von Mises