The cost of the bank bail out
Jeremy Warner has an interesting piece in today’s Telegraph in which he says:
the trickle-down effect that is meant to spring from wealth accumulation has not worked as it should have. Flexible labour markets have delivered big time for bankers and shareholders, but failed to improve the lot of ordinary workers in the same way. In Britain, growth in consumption was funded not by real economic advancement, but by the fool’s paradise of ever-increasing debt.
Now, the excesses of the system have brought fiscal ruin, and the worst economic crisis in 80 years. Yet the bankers have recklessly and arrogantly taken their windfall gains from the massive state support that resulted and paid them out in bumper bonuses. People are angry and getting angrier. And even as ordinary employees are being asked to suffer wage cuts and job losses, executive pay is continuing to rise. Never has the multiple of a chief executive’s remuneration to that of his most lowly employee been so high – in some cases, 400 times the amount.”
It is well worth reading the whole thing for an analysis of what is wrong that is very close to one that we would make at the TUC.
But his solution – a return to “the old-fashioned virtues of self-discipline, fairness and social responsibility” seems a bit weak without any analysis of how we might get there. Instead he holds out China as a model.
China has had a good crisis in some ways, but its model of markets without democracy in an authoritarian state does not impress me. And its lack of democracy and the ability of its elite to therefore stop the development of a proper welfare state reminds me of the 19th century Tory arguments against extending the franchise. (I’m reading David Marquand’s magisterial Britain since 1914 at the moment.)
This crisis was made in the finance sector but the two great imbalances in the economy that gave banks the scope were the trade imbalance with China and the declining share of wages in the economy (as Warner alludes to).
I am also indebted to Warner for this factoid:
In a speech this week, Andy Haldane, the Bank of England director responsible for financial stability, pointed out that modest reductions in the payments to shareholders and staff made by British banks in the run-up to the crisis – lowering dividends by a third and remuneration by a mere 10 per cent – would have more than covered all the capital that taxpayers have been forced to provide to bail them out.”