Recently I saw this familiar yet unchanging graph on one of my favorite news sites:
Source: Office for National Statistics
This to me, is quite astonishing. Really? Productivity rose consistently up until the 2008 financial crisis, then slumped, without any significant improvements since? Perhaps most intriguing is that economists can’t agree as to what is causing it.
I can never resist speculating about things like this. I have absolutely no data to back my ideas, but shoot, I’ve gone to the effort of setting up a blog – I’m allowed an opinion right?
One of the most striking changes since that line stopped going ‘up’ was a significant loosening of fiscal policy in the United Kingdom. Quantitative easing, near zero interest rates. We all know that these conditions create asset bubbles, that was on purpose. The London property market has turned out to be the largest outlet.
The situation these days is so bad, that earnings, even by the most skilled, have become practically irrelevant when it comes to purchasing property. Either you have existing equity, or you can sod off.
I cannot help but ponder the potential issues for the economy given that we are now in this situation. In the United Kingdom – the lion’s share of economic activity occurs in London, where one of the most fundamental needs of human beings, that is, a stable living situation – is more or less out of the question for anyone born after 1985 – an unfortunately, ever increasing portion of the capitals workforce.
It’s not all about London though. Millennials all over the country are subject to the endless shake-down of buy-to-let landlords, and are understandably becoming increasingly frustrated. But let’s put them aside for a little bit and consider another demographic: Those who have already left, or never came here to begin with.
With link between earnings and home ownership smashed long ago – Gone also, is opportunity. Opportunities for talented young people to carve out a life which is acceptable to them.
In my line of work, when conditions deteriorate – the top talent is always first to scatter into the wind. One cannot help but wonder if that also applies to entire economies.
I am by no means implying that what I’ve talked about here is the sole cause of Britain’s productivity slump, but I do wonder if taking steps to re-unite earning power with the ability to purchase property may not be such a bad thing.
That having been said – incumbents (ranging from landlords to land bankers) are not going to take thier hands out of the property cookie jar by choice. It is difficult to imagine a scenario which does what I am suggesting that wouldn’t be bad for all of us.