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If you already have a job you are far more likely to be able to get another job.  If you earn enough to be able to save for a deposit, or are lucky enough to have parents who can help you, you might be able to afford to buy somewhere to live.  If not you will probably have to rent forever.  And if you don’t have a job you are at the mercy of landlords and any welfare help available.  And hundreds of thousands of young people in the European Union don’t have jobs.  This is why over 4.1 million people are homeless in Europe, and yet there are believed to be over 11 million homes standing empty while their owners wait for these properties to increase in value. To understand how this situation came about it’s important to realise that capitalism is, according to good old Wikipedia, “an economic system based on private ownership of the means of production and their operation for profit.  Characteristics central to capitalism include private property, capital accumulation, wage labour, voluntary exchange [of that labour and money for goods], a price system, and competitive markets.” And now capitalism is facing a major crisis.  It no longer provides rising living standards for the many, and the banking system that underpins the economy is fuelling a housing bubble.  In the space of a couple of generations employment and housing prospects have changed significantly, particularly for younger people.  On the face of it unemployment across the European Union (E.U.) is not too bad, currently running at 10.4%, but that figure masks the fact that some countries are more severely affected than others, and that the young are particularly badly hit.  Currently the unemployment rate for those under 25 years old in the E.U. averages 22% but in some countries like Greece, Spain and Italy nearly half this age group is unemployed.  This situation is driving social unrest, and large numbers of economic migrants and refugees from the Middle East, who are also competing for entry level jobs, make the position even worse.  Some European countries are better economically placed than others to accept an increase in their population.  Germany, for example, has the lowest unemployment rate at 4.5% in the E.U. because they successfully manufacture and export goods that many other Europeans buy.  But even in a prosperous economy like Germany many people are worried that an influx of more people will depress wages, create a housing shortage, and increase insecurity.  That level of domestic worry, plus lack of support from other E.U. countries as well as her fellow politicians, forced the German Chancellor, Angela Merkel,  to back-track on her open door immigration policy.  All politicians are focussing on the rising tide of immigration from within and without the E.U., and whilst this is certainly is not helping young people get jobs or reasonably priced housing, other factors are equally important.  The truth is that globalisation has resulted in production moving from developed western countries to eastern countries like China and India, and this has been holding down wages for most people for many years.  It’s only now in “The Great Long Depression” that the loss of jobs in the West has become more obvious.  As the American investment legend Warren Buffett once pointed out – "after all, you only find out who is swimming naked when the tide goes out.”  So it is with jobs – you don’t know how strong an economy is until a recession arrives.  Even in the prosperous United States for many people, in real terms, wages are much as they were in the 1960s.  This state of affairs was largely unnoticed by economists until the financial crash in 2008 when low aggregate demand started to worsen the situation,  It was only then that economists and central bankers seemed to realise that wage levels were not increasing.  Many economists still insist on blaming static or falling wages on low productivity, although it’s pretty obvious that many jobs in developed countries have been exported overseas.  Sadly, it’s also apparent that unbridled capitalism of a neo-liberal sort is unlikely to restore the balance by raising wages which would give people more to spend and therefore increase demand.  In the long lead up to the 2008 financial crash it was the availability of ridiculously easy credit that drove aggregate demand to such a pitch and these circumstances, which led to unprecedented debt at an individual and national level, are going to take a long time to unwind.  Unemployment, underemployment - particularly for young people lacking experience and unskilled migrant workers - will be a major concern for many, many years to come.  Two years ago I wrote about how education was getting very expensive, especially as university management were giving themselves huge pay rises.  Nowadays young people who get a university education have to cope with crippling debt burdens, as well as facing the difficulty of finding a job, let alone paying for expensive housing once they have graduated. As well as creating an onerous debt burden, the higher education system fails to provide students with appropriate skills for today’s business environment.  In the U.K. particularly, the emphasis on an “academic” education has diminished the importance of far more useful vocational training.  For example, this emphasis has resulted in a practical and caring profession like nursing filtering out empathetic and kind individuals in exchange for people who are better at the abstraction taught at universities.  The outcome of this stupidity has led to an acute shortage of National Health Service nurses, so many vacancies are filled from overseas, often by people with inadequate English.  This has had a knock-on effect of producing some dreadful hospital scandals, some of which have been uncovered by the media.  Two recent cases illustrate the deadly mess that is a direct consequence of the academic direction the U.K. nursing profession has taken, look at this article as well as this article And nursing isn’t the only profession that has been let down by the educational system, one has only to look at the domestic house building, renovation and repair market.  In the U.K., unlike Germany where apprenticeships are required and respected, anyone can become a builder.  In the last 20 years E.U. membership has led to an influx of skilled, and many not so skilled, Eastern European, especially Polish, builders into the U.K.  And there is plenty of work for all those builders, good or bad.  House prices have risen dramatically since the 2008 financial crash and it’s ironic that the Central Banks which caused such a catastrophe continue to flourish now with their “quantitative easing.” These two weasel words describe increasing the money supply for commercial banks.  Those banks aren’t using this extra money to help developing businesses.  Instead they choose to fuel the property bubble by providing mortgage loans for housing, and for giving secured loans on property which needs renovating or repairing.  They can’t lose.  And nor can the Eastern European builders, honest and efficient or not, who can afford to undercut local workmen.  So, in the U.K., house prices continue to increase, especially in London and the South- East, because more money is chasing a static housing stock.  Nobody except the bankers benefits from this.  Certainly not the young people who make up “generation rent” who see their chances of owning a home slip further and further out of reach.  If you already own a house you are far more likely to be able to buy another one because of capital appreciation.  In fact, in the U.K., house prices are rising so fast, they often actually outpace their owner’s capacity to earn or, of course, to save. Until I read Adair Turner’s recent book I didn’t realise that, as the chart above shows, an incredible 79% of the U.K.’s bank lending is against property.  That breaks down to 65% residential property loans and 14% for loans to businesses for property.  In his book Turner makes the interesting observation that this state of affairs is natural in any advanced economy as more and more people become wealthier and compete for the one resource that is inelastic – not so much the property itself but the land on which it sits.  I’m not so sure about this, if it were so an apartment in a high rise block in central London would be considerably cheaper than a house covering a similar area.  There is a price difference, although apartments on a 20 floor high development are not 20 times cheaper than a house.  They are more likely to be only a third to a half cheaper and, in some circumstances like a penthouse with a view, can actually be more expensive. A lot of this has to do with the fact that banks have always had a propensity to provide loans against physical assets that are highly tradeable, and therefore very secure.  Approach a bank for a loan and they want some security that that they can easily sell in the event of non-repayment of the loan.  Nothing is a more appetising security for a bank than a property they usually value at 25% below the market rate, especially in a rising housing market. So banking in its present form will always have a strong bias towards extending loans for property purchase or improvement - pushing house prices ever higher.  And governments, to bolster their failing banks, have fed them more and more money (the wretched quantitative easing).  The outcome is the ever-inflating housing bubble, especially in Europe’s capital cities.  Now it appears that everyone who has any capital is investing in property in some form or other. Two popular strategies involve either buying a run-down property at a lower price to modernise and sell on at a higher price, or buying any sort of property to let to our home-grown “generation rent” or to newly arrived migrants.  You can get a feel of what kind of world this is creating in London if you read John Lanchester’s 600 page novel Capital or, if you haven’t time for this, then watch the recent heavily abridged three-part British television adaptation of the book.  One character running continually in the background throughout the narrative is the heavily in demand, stereotypical Polish builder renovating the houses in the street central to the book.  It was very astute of Lanchester to call his novel “Capital,” obviously a pun on London as a capital city, but also the title of the master work of the great political economist Karl Marx. So it seems that either you have the capital to buy property or, like a debt-laden graduate or a newly arrived immigrant, you do not.  In that case you must pay money, often lots of money, to rent a home from those who have the capital to buy.  This situation of the haves and have not is now so common that it’s creating a generation of rich drones who feed off the worker bees.  At some point this must all end in tears.  In the meantime, as Kark Marx observed back in 1867 in Chapter 10 of his book “Capital” - “In every stockjobbing swindle everyone knows that some time or other the crash must come, but every one hopes that it may fall on the head of his neighbour, after he himself has caught the shower of gold and placed it in safety.  Après moi le déluge! is the watchword of every capitalist and of every capitalist nation.”  The European house price “shower of gold” is unlikely to stop until the banks are forced by government legislation to limit lending on property, and to fund developing businesses to create more job opportunities, especially for younger people.  Perhaps this is the one thing that will burst the housing bubble which only benefits the few. March 2016
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If you already have a job you are far more likely to be able to get another job.  If you earn enough to be able to save for a deposit, or are lucky enough to have parents who can help you, you might be able to afford to buy somewhere to live.  If not you will probably have to rent forever.  And if you don’t have a job you are at the mercy of landlords and any welfare help available.  And hundreds of thousands of young people in the European Union don’t have jobs.  This is why over 4.1 million people are homeless in Europe, and yet there are believed to be over 11 million homes standing empty while their owners wait for these properties to increase in value. To understand how this situation came about it’s important to realise that capitalism is, according to good old Wikipedia, “an economic system based on private ownership of the means of production and their operation for profit.  Characteristics central to capitalism include private property, capital accumulation, wage labour, voluntary exchange [of that labour and money for goods], a price system, and competitive markets.” And now capitalism is facing a major crisis.  It no longer provides rising living standards for the many, and the banking system that underpins the economy is fuelling a housing bubble.  In the space of a couple of generations employment and housing prospects have changed significantly, particularly for younger people.  On the face of it unemployment across the European Union (E.U.) is not too bad, currently running at 10.4%, but that figure masks the fact that some countries are more severely affected than others, and that the young are particularly badly hit.  Currently the unemployment rate for those under 25 years old in the E.U. averages 22% but in some countries like Greece, Spain and Italy nearly half this age group is unemployed.  This situation is driving social unrest, and large numbers of economic migrants and refugees from the Middle East, who are also competing for entry level jobs, make the position even worse.  Some European countries are better economically placed than others to accept an increase in their population.  Germany, for example, has the lowest unemployment rate at 4.5% in the E.U. because they successfully manufacture and export goods that many other Europeans buy.  But even in a prosperous economy like Germany many people are worried that an influx of more people will depress wages, create a housing shortage, and increase insecurity.  That level of domestic worry, plus lack of support from other E.U. countries as well as her fellow politicians, forced the German Chancellor, Angela Merkel,  to back-track on her open door immigration policy.  All politicians are focussing on the rising tide of immigration from within and without the E.U., and whilst this is certainly is not helping young people get jobs or reasonably priced housing, other factors are equally important.  The truth is that globalisation has resulted in production moving from developed western countries to eastern countries like China and India, and this has been holding down wages for most people for many years.  It’s only now in “The Great Long Depression” that the loss of jobs in the West has become more obvious.  As the American investment legend Warren Buffett once pointed out – "after all, you only find out who is swimming naked when the tide goes out.”  So it is with jobs – you don’t know how strong an economy is until a recession arrives.  Even in the prosperous United States for many people, in real terms, wages are much as they were in the 1960s.  This state of affairs was largely unnoticed by economists until the financial crash in 2008 when low aggregate demand started to worsen the situation,  It was only then that economists and central bankers seemed to realise that wage levels were not increasing.  Many economists still insist on blaming static or falling wages on low productivity, although it’s pretty obvious that many jobs in developed countries have been exported overseas.  Sadly, it’s also apparent that unbridled capitalism of a neo-liberal sort is unlikely to restore the balance by raising wages which would give people more to spend and therefore increase demand.  In the long lead up to the 2008 financial crash it was the availability of ridiculously easy credit that drove aggregate demand to such a pitch and these circumstances, which led to unprecedented debt at an individual and national level, are going to take a long time to unwind.  Unemployment, underemployment - particularly for young people lacking experience and unskilled migrant workers - will be a major concern for many, many years to come.  Two years ago I wrote about how education was getting very expensive, especially as university management were giving themselves huge pay rises.  Nowadays young people who get a university education have to cope with crippling debt burdens, as well as facing the difficulty of finding a job, let alone paying for expensive housing once they have graduated. As well as creating an onerous debt burden, the higher education system fails to provide students with appropriate skills for today’s business environment.  In the U.K. particularly, the emphasis on an “academic” education has diminished the importance of far more useful vocational training.  For example, this emphasis has resulted in a practical and caring profession like nursing filtering out empathetic and kind individuals in exchange for people who are better at the abstraction taught at universities.  The outcome of this stupidity has led to an acute shortage of National Health Service nurses, so many vacancies are filled from overseas, often by people with inadequate English.  This has had a knock-on effect of producing some dreadful hospital scandals, some of which have been uncovered by the media.  Two recent cases illustrate the deadly mess that is a direct consequence of the academic direction the U.K. nursing profession has taken, look at this article as well as this article And nursing isn’t the only profession that has been let down by the educational system, one has only to look at the domestic house building, renovation and repair market.  In the U.K., unlike Germany where apprenticeships are required and respected, anyone can become a builder.  In the last 20 years E.U. membership has led to an influx of skilled, and many not so skilled, Eastern European, especially Polish, builders into the U.K.  And there is plenty of work for all those builders, good or bad.  House prices have risen dramatically since the 2008 financial crash and it’s ironic that the Central Banks which caused such a catastrophe continue to flourish now with their “quantitative easing.” These two weasel words describe increasing the money supply for commercial banks.  Those banks aren’t using this extra money to help developing businesses.  Instead they choose to fuel the property bubble by providing mortgage loans for housing, and for giving secured loans on property which needs renovating or repairing.  They can’t lose.  And nor can the Eastern European builders, honest and efficient or not, who can afford to undercut local workmen.  So, in the U.K., house prices continue to increase, especially in London and the South-East, because more money is chasing a static housing stock.  Nobody except the bankers benefits from this.  Certainly not the young people who make up “generation rent” who see their chances of owning a home slip further and further out of reach.  If you already own a house you are far more likely to be able to buy another one because of capital appreciation.  In fact, in the U.K., house prices are rising so fast, they often actually outpace their owner’s capacity to earn or, of course, to save. Until I read Adair Turner’s recent book I didn’t realise that, as the chart above shows, an incredible 79% of the U.K.’s bank lending is against property.  That breaks down to 65% residential property loans and 14% for loans to businesses for property.  In his book Turner makes the interesting observation that this state of affairs is natural in any advanced economy as more and more people become wealthier and compete for the one resource that is inelastic – not so much the property itself but the land on which it sits.  I’m not so sure about this, if it were so an apartment in a high rise block in central London would be considerably cheaper than a house covering a similar area.  There is a price difference, although apartments on a 20 floor high development are not 20 times cheaper than a house.  They are more likely to be only a third to a half cheaper and, in some circumstances like a penthouse with a view, can actually be more expensive. A lot of this has to do with the fact that banks have always had a propensity to provide loans against physical assets that are highly tradeable, and therefore very secure.  Approach a bank for a loan and they want some security that that they can easily sell in the event of non-repayment of the loan.  Nothing is a more appetising security for a bank than a property they usually value at 25% below the market rate, especially in a rising housing market. So banking in its present form will always have a strong bias towards extending loans for property purchase or improvement - pushing house prices ever higher.  And governments, to bolster their failing banks, have fed them more and more money (the wretched quantitative easing).  The outcome is the ever-inflating housing bubble, especially in Europe’s capital cities.  Now it appears that everyone who has any capital is investing in property in some form or other. Two popular strategies involve either buying a run-down property at a lower price to modernise and sell on at a higher price, or buying any sort of property to let to our home-grown “generation rent” or to newly arrived migrants.  You can get a feel of what kind of world this is creating in London if you read John Lanchester’s 600 page novel Capital or, if you haven’t time for this, then watch the recent heavily abridged three-part British television adaptation of the book.  One character running continually in the background throughout the narrative is the heavily in demand, stereotypical Polish builder renovating the houses in the street central to the book.  It was very astute of Lanchester to call his novel “Capital,” obviously a pun on London as a capital city, but also the title of the master work of the great political economist Karl Marx. So it seems that either you have the capital to buy property or, like a debt-laden graduate or a newly arrived immigrant, you do not.  In that case you must pay money, often lots of money, to rent a home from those who have the capital to buy.  This situation of the haves and have not is now so common that it’s creating a generation of rich drones who feed off the worker bees.  At some point this must all end in tears.  In the meantime, as Kark Marx observed back in 1867 in Chapter 10 of his book “Capital” - “In every stockjobbing swindle everyone knows that some time or other the crash must come, but every one hopes that it may fall on the head of his neighbour, after he himself has caught the shower of gold and placed it in safety.  Après moi le déluge! is the watchword of every capitalist and of every capitalist nation.”  The European house price “shower of gold” is unlikely to stop until the banks are forced by government legislation to limit lending on property, and to fund developing businesses to create more job opportunities, especially for younger people.  Perhaps this is the one thing that will burst the housing bubble which only benefits the few. March 2016
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