Tuesday, December 09, 2008

Separated At Birth?

Try as he might, Macro Man has failed to muster any enthusiasm for the recent equity rally. Can it continue? Of course it can...perhaps markets will view a Big 3 resolution as a favourable outcome (though Macro Man will be sceptical of any resolution that fails to improve styling, build quality, and energy efficiency.)

That the Tribune Co. has gone bust is perhaps a timely reminder of the underlying economic forces at play; Macro Man expects more of the same throughout 2009. The S&P 500 closed yesterday at a level reached exactly two months ago; for all the sturm und drang of financial crises, bailouts, and stimulus packages, equities have been a lousy trade from both the bull and bear side.

One country at the forefront of bailouts and government stimuli is of course, the UK, Macro Man's adopted homeland. Somewhat bizarrely, Gordon Brown's approval ratings have started to recover as the economy falls off a cliff. This probably says more about the limp state of the Tories than any particular merit of the Labour government; David Cameron appears to stand for very little other than a vague desire to be PM some day.

Non-UK residents will struggle to understand the degree to which the government controls everyday life here in Britain. Highway safety is "ensured" by speed cameras, a revenue-generating bonanza straight out of 1984. Public safety is "ensured" by a police force that spends more time filling in forms than walking the beat. And worker safety is "ensured" by a series of onerous "health and safety" regulations that prevent the most of innocuous of activities on the basis that somebody might stub a toe.

At some juncture, there will be a public backlash against the imposition of the Nanny State and the dominating role of the government in everyday life. In the meantime, however, it just might be possible to see why big government bailouts are a vote-winner. More than a quarter of all employees in the UK now work for the public sector, a ratio that has comfortably reached record highs under the Labour government. Indeed, nearly half the jobs created under the Killer B's (Messrs. Blair and Brown) have been up the public sector variety.
What makes working for the government so nice in Britain is that you get a final salary pension, a defined benefit of the type that has rendered the US auto industry ludicrously uncompetitive in the global marketplace. And as the ratio of public sector workers rises, the future tax burden on the private sector (which itself has a massive funding gap in its pension system) to fund those defined benefit schemes rises very substantially indeed.

It's not difficult to imagine a scenario in which the UK is rendered utterly uncompetitive because of the tax burden required to fund its government obligations. While it is hard to begrudge NHS doctors a decent pension in their retirement, it is really quite scary to read about the emergence of so-called Soviet towns in Britain, where a majority of the residents work for the government.

And so it happened that Macro Man was struck by an epiphany when he saw a photo of a smirking Gordon Brown in the newspapoer this morning. Gordo is well on his way to turning Britain into some sort of Orwellian dystopia...and Macro Man realized that it is in his genes. For who does he resemble in looks, thoughts, and deeds other than Georgy Malenkov, one-time Premier of the Soviet Union?
The only way they weren't separated at birth is the age gap...in which case Gordo might actually by Malenkov's bastard love-child. Either way, Gordo is steering the UK down the Soviet path, both economically and socially. Sadly, it seems inevitable that the situation in the UK will get worse before it has any hope of getting better.


Anonymous said...

MM, as a fellow American, you might find this "strategy" for the US avoiding the auto crisis. I wish I could take credit for it. It was written by the Sports Guy of ESPN fame....

"If the state of Michigan were a struggling athlete, we'd say, "Man, he needs a change of scenery." Well, why can't we give Michigan a change of scenery? What if we sold Michigan to Canada since it's right on their border?

"Think about it. Canada gets the spiritual lift of purchasing one of the 50 states, as well as musicians like Kid Rock, Bob Seger and Eminem, a second NBA and MLB team, two Big Ten schools, another NHL team, its first NFL team and, of course, more territory. Canadians would be flying high ... so high they wouldn't even mind that they were now involved in the WNBA. Meanwhile, America would escape billion-dollar buyouts for the car companies, and if we need a 50th state, we can always use Puerto Rico as long as it doesn't put us over the luxury tax. Michigan natives get universal health care, a fresh start and a chance to feel like they're spending more money than usual with the Canadian dollar. Everyone wins!"

Macro Man said...

Anonymous, he's ripped me off! I had the same idea I had in July, with Michigan going to Canada. He needs to up his game if he's going to compete....all the recent Boston sports success has made him lazy.

Charles Butler said...

No deal as long as the Nuge is still there.

Anonymous said...

Dolefully, I have to agree with you about the state of the UK. Everything seems straight out of 1984, from the talking CCTV cameras, through the DNA database (thank goodness for the European Court of Justice, never thought I would be saying that) and the proposed database of all emails, telephone calls and faxes, to the "Ministry of Justice". Private Eye's satire on Gordon is becoming closer and closer to the truth.

Yours, Hoping they are not spying on my PC,


Manc Trader said...

Well written MM. It is depressing what is happening in the UK. A place where innovation and risk taking runs in the blood is being turned into a complete backwater by bad policy after bad policy.

SD said...

MM et al.- Something seems rotten in the state of BRL... only a matter of time 'till this spills over to the DI?
On another topic, how u feel about them Treasuries? Look pretty frothy to me (that and the BEIs), might be time to dabble with a little short; will wait to see how the 10-yr auction goes though.
Brilliant post once again.

Sean Maher said...

Spot on MM, Stalin was always a flattering comparison for Brown, he lacks the single minded ruthlessness and focus of a world-class dictator, but would have fitted perfectly as one of the grey apparatchiks of the Soviet Politburo, boring on endlessly about the latest combine havrester production levels.

Anonymous said...

Here's the conspiracy theory.

Brown is bought and paid for by the illuminati. For selling so many tons of gold, Brown was guaranteed the PMs slot.

Here's kookiest part of this theory. The Illuminati is planning massive population reduction (use your imagination to figure out how that would happen).

By reducing the population, voila, instant cure for the blow up in the UK welfare state.

Anonymous said...


Anonymous said...

interesting the SPX did +100 on the nose thus far from last friday low

3-month bills yield below ZERO at -0.05%

illinois governor quite the man of the hour, forcing BAC to lend to a bankrupt company a scary notion, and the state itself is a very highly debt laden entity... time to do a good ole american 'punt', i.e. 'kick him out!'

jam said...

"Gordo might actually by Malenkov's bastard love-child"

Good humor, keep up the good work MM.

RebelEconomist said...

Since you actively defend the originality of your territory sales post, you goad me into claiming in turn that you got the idea - albeit unconciously perhaps - from me at Setser's blog (see eg my comment at 17.32 on 1/4/07).

I do agree with you about Gordon Brown. I despair when I compare our "sugar rush" stimulus in the form of an attempt to revitalise exhausted consumption via a VAT cut (not to mention Gord's efforts to lean on the banks that he is lending to at 12% to "pass on" the BoE cut to 2%), with the infrastructure building plans in China and the US.

MichaelJ said...

MM - what is interesting to me about your % of workers in govt graph is, the % has been rising not just in the last 10 or 20 years, but since the late 1970s.

So even during Thatcher's era, % of workers in the govt was rising. What's with that?

Cijferaar said...

Comforting for Mr Brown; "Despite many close calls, he was one of relatively few important members of Stalin's inner circle who died a natural death in old age"