Wednesday 19 February 2014

Why it's dangerous when the middle classes feel betrayed

Years ago, my friend Iain King cast my horoscope in return for an omelette.  "Yes, I see this in a lot of Lib Dem charts," he said.  "I think it means unreasonable optimism."

Which is a way of explaining that I've always been optimistic.  I don't feel comfortable as Cassandra.  I don't believe in disaster.  I certainly don't believe in extrapolating disastrous trends.

Yet really, sometimes, the middle classes could try Cassandra's patience.  There they are in the UK, staring oblivion in the face in less than a generation, happily shelling out for their indentured servitude by mortgage, and taking out their occasional frustrations by beheading the chair of the Environment Agency and other symbolic officials.

I wrote a book about it.  Rather a good one, though I say it myself (it's called Broke: How to Survive the Middle Class Crisis).  It isn't pessimistic, in fact - it suggests a way out.  It even predicts a way out.

But I do occasionally wonder, especially yesterday - when the commentators hail the drop in inflation to 1.9 per cent and the rise in average house prices to a quarter of a million pounds - why there is so little debate about the big trends.

Not whether there is a house price bubble this winter, but whether there has been a disastrous house price revolution in the last 30 years - and whether, if it goes on the same way for another 30 years, the average house price in the UK will actually be £1.2m (it will).

So it is a relief that a commentator with her finger so much on the pulse, like Lucy Mangan, has raised the alarm (thank you, Lucy, for bringing me into the debate as well).  This is what she says:

"Already among my friends there is a sense of betrayal. It used to be (we know, from the parents who lived through it and with whom we are increasingly moving back in to save on housing or childcare costs), that if you played the game, if you did all the right things – were thrifty, diligent, cleaved to the principle of deferred gratification – the system would reward you with leisure time, spare cash and a certain freedom from worry in the short and in the long term. Now the feeling is that you have to outwit the system in order to survive it. Win the lottery, have a brilliant business idea, marry money (no longer a dream confined to women, by the way) or inherit it from several forgotten aunts or a neighbour whose beloved cat you once rescued – something semi-miraculous that will provide the protection modest living, hard work and hard saving once did."

That is exactly right.  Because, despite their denial, I believe Lucy Mangan is right that the middle classes feel that something fundamental has changed.  

These are dangerous moments.  When the middle classes understand that they have been betrayed, by the politicians who governed in their name - and by the financial services who looked after their money - it can get ugly.

The rise of the nationalist right across Europe is one symptom of this betrayal, and of the failure of mainstream political parties to provide any kind of solution - even to articulate the problem.

It is, after all, as much a moral problem as an economic one, because the whole system of deferred gratification on which English middle class life depends has crumbled away.  And every new round of bankers bonuses removes a few more pit props supporting it.

So I am nervous about the future for fear of the politics of betrayal, as much as I am afraid of the economic future for my children in the new sprawling proletariat.

But I am still optimistic.  Because, as Lucy Mangan says, the middle classes still have the power to shift the situation.  If they can grasp what is going on.

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6 comments:

Anonymous said...

but whether there has been a disastrous house price revolution in the last 30 years

According to the 'priced out' idiots,

' In 1980, the average house price was just over £20,000, around 3.5 times the average income.'

'The average house price in 2012 was 6.7 times median pre-tax income.'

So assuming they are comparing median pre-tax incomes (and surely to do otherwise would be dishonest, so we can discount that possibility) that's an increase from 3.5 to 6.7 times the median income.

Well... maybe. There's another way to look at it, you see. Because when it comes to housing, what is important is not individual incomes, but household incomes, isn't it? And that increase from 3.5 times to 6.7 times, why, that's a bit less than a doubling. That would be shocking... unless, perhaps, household incomes had also almost doubled in that time?

And you know what... I think they have. Because whereas previously most households would have been getting by on one (man's) income, now, because of the increased freedom of women to work, most households have in fact two incomes. I don't know about you but I think this is a good thing.

Now obviously a household with two incomes is going to be able to spend more on housing than a single income, and, well, it seems to me this pretty much explains the increase in house prices in terms of median incomes.

Have I missed something? When you say you have a solution, does it involve banning two=income households? Because that's pretty much the only thing I can see working...

BruceK said...

Why would they have to compare pre-tax incomes?
Also, would that not omit the effect of removing Miras?

Anonymous said...

Why would they have to compare pre-tax incomes?

To compare like for like.

Nowadays net income is, what, about two-thirds of gross income for most middle-class people (ie, not to much above nor below the higher-rate threshold)?

So that would affect the multiplication factor by two-thirds (ie, 6.7 times net income is 4.6 times gross income) and would make the increase look much less.

So unless they are deliberately changing bases in order to make the multiplication factor look more (and that would obviously be disingenuous, and they are clearly on the side of the angels so they wouldn't do such a thing) they must be comparing net incomes in 2012 with in incomes in 1980.

Yes?

Also, would that not omit the effect of removing Miras?

I think any difference in mortgage interest relief (of which there have been many different forms) would be swamped by the distortion if they changed index from gross to net income.

Anonymous said...

@Anonymous

It may well be that there are more dual-income households out there. If that is the case, then why has so much of the bounty in extra wages gone to bidding up the price of land, rather than been redirected towards other investments or consumption?

Perhaps before calling Priced Out 'idiots', you might consider whether there is some significant redistributive trend at work too? Look at the precipitous drop in owner-occupier rates among young people. It cannot be explained by 'too many iPads', it can only be explained by the pricing out of a generation by a rentier class.

One of two things has to happen in the property market: (a) the markets will crash when people realise that their paper gains in property are illusory because a debt-burdened and assetless 'middle-class' cannot support rents/resales in twenty to thirty years time. Or (b) property prices stay where they are and we genuinely go back to a landed gentry in Britain. The latter will be disastrous: there is already no point in working for wages in many parts of the UK.

TIm Blackwell said...

Anonymous: The employment rate amongst women was already close to 60% by 1980 (and the employment rate for men at that time was not much above 80%).

Furthermore, it's not inconceivable that single people as well as couples might wish to enjoy secure accommodation.

Tim Blackwell said...

I couldn't find the reference (quoted above) to house prices in 1980 on the priced-out website. What I did find was that in 1997 average house prices were 3.5 times median earnings. Relative employment rates by gender have not greatly changed between then and now, so the contention that two earners per household have replaced one is not really supported by evidence.