How far did PPI go in masking the recession?

chewmylegoff

CLAPTON wrote: »

there is a different propensity to spend in different income brackets

in general richer people tend to spend less of any increase compared to poorer people

there is also the wind fall effect : unexpected money is often used for special things rather than the mundane so a new car, special holiday, big ticket item etc.

and of course it not clear that the bank would have paid out so much if they hadn't been forced to; they may have used it to rebuild their balance sheets.

True, but with PPI payouts averaging about £4bn a year I don't think the difference would really generate a noticeable effect. If anything the huge number of people employed to handle PPI claims has probably had more of an impact.

Generali

I guess it depends what happens to the money instead.

If it would otherwise languish in bank vaults it's a boost to GDP of a multiple of the funds.

If it would go on wages to bank clerks and so get spent anyway then the net difference is about nil.

If it would get lent to businesses to invest in productive output, the effect is probably negative.

So it really depends what else would have happened. We can't know but probably a mix of all of the above is most likely. Net effect? Probably small but I'm guessing really.

Graham_Devon

chewmylegoff wrote: »

Well if the assertion is that paying £3,000 to a PPI claimant boosted the economy because they must have spent it then presumably we can assume that if the £3,000 had instead been paid as a bonus to a banker they would have also spent it, possibly also on a car.

I think the people given PPI would be more likely to spend the money on the car as they are more likely to need the car.

Indeed, same goes for anything else they spent it on.

An investment banker already getting several thousands of pounds will likely already have a perfectly decent car, and one which 3k would seem utterly trivial. Therefore would be less inclined to go out and buy a car as they have found themselves getting a windfall of 3k.

Certainly, more cars would have been bought by the way PPI was given out than if it were simply given to a few, already wealthy individuals.

Can't really see investment bankers thinking "ooo, I got enough money for half an Aygo here, brilliant". Whereas for normal run of the mill families, having enough money for half an Aygo could be quite a big thing.

chewmylegoff

Yes but there are millions of PPI claimants and a much smaller number of bankers so the money would have been concentrated into fewer hands. And probably spent on ferraris, coke and prostitutes.

Graham_Devon

chewmylegoff wrote: »

Yes but there are millions of PPI claimants and a much smaller number of bankers so the money would have been concentrated into fewer hands. And probably spent on ferraris, coke and prostitutes.

Yes, that's what I'm saying.

The money has "gone further". Bought more stuff. More cars.

Therefore, will have involved employment for more people, even if the cars are lower value. And will have increased the figures, as per the article.

chewmylegoff

Graham_Devon wrote: »

Yes, that's what I'm saying.

The money has "gone further". Bought more stuff. More cars.

Therefore, will have involved employment for more people, even if the cars are lower value. And will have increased the figures, as per the article.

Not sure I follow your logic. If a banker spends £300,000 on stuff, why would that have less of an impact and support fewer jobs than 100 PPI claimants spending £3,000 each.

Graham_Devon

chewmylegoff wrote: »

Not sure I follow your logic. If a banker spends £300,000 on stuff, why would that have less of an impact and support fewer jobs than 100 PPI claimants spending £3,000 each.

Much higher profit margins on a ferrari than there are on Aygo's.

So, if essentially, the same money is spent on buying 100 Aygos, as buying 5 ferraris, MANY MANY more people will have been employed building, shipping, selling, dealing with paperwork, warranties, financing, servicing etc the Aygo's than they would for the 5 ferraris sold with a massive profit margin.

Not to mention the second hand car market from all the trade ins etc.

The money simply goes further, and many more people take a (smaller) cut.

Loughton_Monkey

Graham_Devon wrote: »

Much higher profit margins on a ferrari than there are on Aygo's.

So, if essentially, the same money is spent on buying 100 Aygos, as buying 5 ferraris, MANY MANY more people will have been employed building, shipping, selling, dealing with paperwork, warranties, financing, servicing etc the Aygo's than they would for the 5 ferraris sold with a massive profit margin.

Not to mention the second hand car market from all the trade ins etc.

The money simply goes further, and many more people take a (smaller) cut.

That doesn't explain things at all. Both cars are fully built abroad and so are both imports. Hence the GDP implication of £10 million of Ferraris, or £10 million of Aygos is the price sold (i.e. same in both cases) less value as import (i.e. the dealers' gross profit margin. If the margin on Ferraris is better than that of Aygos, then that it better all round.

Even if the profit margin was identical, it's pointless to say you'd rather have £1m drop into 20 Toyota dealers rather than 2 Ferrari dealers. Each £1m gets sliced up, redistributed, and spent into the economy in the proverbial 5 minutes....

.... in either case, the really sad thing is that £9 million has 'walked' out of our economy for ever, never to be seen again.

If we had a 'breakeven' balance of trade, you could add more than 1% every year to our GDP.

Graham_Devon

Loughton_Monkey wrote: »

That doesn't explain things at all. Both cars are fully built abroad and so are both imports. Hence the GDP implication of £10 million of Ferraris, or £10 million of Aygos is the price sold (i.e. same in both cases) less value as import (i.e. the dealers' gross profit margin. If the margin on Ferraris is better than that of Aygos, then that it better all round.

Even if the profit margin was identical, it's pointless to say you'd rather have £1m drop into 20 Toyota dealers rather than 2 Ferrari dealers. Each £1m gets sliced up, redistributed, and spent into the economy in the proverbial 5 minutes....

.... in either case, the really sad thing is that £9 million has 'walked' out of our economy for ever, never to be seen again.

If we had a 'breakeven' balance of trade, you could add more than 1% every year to our GDP.

Right, so you are suggesting it costs the same amount of labour (time) to process, transfer, finance and sell 5 ferraris as it does to sell 100 Aygo's?

More people will be employed in the UK to sell those 100 Aygos than the 5 ferraris. More people will be employed servicing those 100 Aygos than will be the ferraris.

Ramp up the numbers to 10,000 Aygo's and 50 ferrari's and the point is even more pronounced.

Simple as that. I don't even see why it's trying to be suggested it's not the case to be honest, but note you have been careful to only comment on the fact that the cars are built outside the UK and gloss over the jobs created once they are inside the UK.

Loughton_Monkey

Graham_Devon wrote: »

Right, so you are suggesting it costs the same amount of labour (time) to process, transfer, finance and sell 5 ferraris as it does to sell 100 Aygo's?

More people will be employed in the UK to sell those 100 Aygos than the 5 ferraris. More people will be employed servicing those 100 Aygos than will be the ferraris.

Ramp up the numbers to 10,000 Aygo's and 50 ferrari's and the point is even more pronounced.

Simple as that. I don't even see why it's trying to be suggested it's not the case to be honest, but note you have been careful to only comment on the fact that the cars are built outside the UK and gloss over the jobs created once they are inside the UK.

You're talking absolute rubbish again. As usual. In both cases, we have £1 million in Gross Profit, and £1 million extra GDP. Even if (as you are assuming - probably wrongly) the £1m Toyota profit is gobbled up in £750K salaries to 134 invoice clerks and sales people, whereas the £1m Ferrari profit is gobbled up by £750K salaries but only to 12 very highly paid invoice hostesses, and to 12 very fat salesmen making £12K commission per car.....

In both cases, a large amount of cash is going to people. What does it matter how many? They all tend to spend it. It's all "wages" and has exactly the same impact on average UK wages.

Every time you learn that maybe supermarkets are paying 2 part time people rather than twice the salary to just one person, you are the first person in the queue to cry foul! Low wages. So you are against the same money going to more lower paid staff than to a few well paid ones.

Make your mind up!

What if Ferrari said "Look. We made £250K profit. Here's £1,000 bonus to all 150 staff." While Toyota said "Look. We made £250K profit. Here's £75K bonus for Fred, and £75K bonus to Mary". I know you would prefer the Ferrari model on "Social" grounds, but I am telling you it's irrelevant. In economic terms, both are exactly the same. £1m has got into the UK economy where it drifts around at such a lightening speed we don't notice it.

PS: And please don't come back talking speculative drivel about how a fat salesman is likely to spend £75K bonus on a foreign villa whereas 150 low paid Toyota staff will spend it at Sainsbury's. That is a complete unknown and nothing to do with the thrust of my points. Let's assume the wages (whether to 12 or 120 people) all gets spent in UK, including tax.