Economy Jobs: Just the end of the beginning

Sunday, June 14th, 2009 - economics, Education, job search, Professional CV, sunday thoughts, tutorial

Economy Jobs: Just the end of the beginning

319/365 The Long Walk
Creative Commons License photo credit: stuartpilbrow

After a torrid month of politics, and a positive month of economics, it is difficult not to be positive about the value of democracy to the British people. But neither the economic crisis which started in the 2000’s build up of debt is finished, and neither is Gordon Brown safe in Downing Street

It is really just a feeling that both are now stable, and that people look at these things with a different and positive perspective. Except those who are presently unemployed, which will still be rising into 2010.

Economic history

The problems were brought about by excess borrowing, which resulted in excess spending. Add in the fact that a £100 bicycle could now be brought from Halfords with the same Raleigh brand on it as it did 50years ago, but now it cost about the same as it did then in relative terms. Resultantly, we in the developed world had a gluttonous feast of spending. If we couldn’t afford it now, we could always “finance it” – what my bank manager father knows as debt.

This created economic growth, and while America built houses that their banks knew would be worth 10% more than the rate of inflation next year, the UK sucked up cheap goods and Eastern European workers.

Much like speculators on stocks or in the price of gold, when bankers knew something would be worth more in a years time, they didn’t need to worry about how it was financed. Even if the financing falls apart in 12months and a day, they have something worth 10% more than it was, and can hence make a profit. The problem in America was two fold though:

  • The don’t worry about how its financed question meant they choose some people who shouldn’t have been financed
  • As a result of running out of financing cash, they came up with complex financial tools that even they didn’t understand, to package the debt out and get new financing cash back in

We can hence conclude that the Americans are to blame for the global financial crisis.

In the UK, a banking hub of the world, we helped allow that expansion through our fine legal system. Foreigners, a combination of: Eastern Europeans cashed-up off of the back of post-Communist liberalisation; Arabs looking for an income post-oil; or Asians looking to spend their production money and speared their risk – came in, gave their money to our banks, who gave it to the Americans. This lead to an expansion in the UK, which created an expansion in tax income, which lead to an historic first Labour Government which didn’t need to tax and spend: it didn’t need to, it had far too much cash! But what it didn’t do was save, it just spent – NHS spend has tripled in 12years, a cumulative growth rate of 10.5% every years, for the last 12years, or around 1% per month.

The rest of the world divides into two camps: manufacture and supply goods; helping people to spend their expansionist money, mostly on construction.

The bubble burst

So where are we now? America has a new president with a highly adapt personal touch, who probably can repair much of the global dialogue damaged during the past eight years of administration. In part, GWBush spent the expansionist US tax dollars on fighting a highly personal global war that he wouldn’t have been able to fight, had it not been in part financed by the people he was fighting. Obama doesn’t have that income, so he has to become more communicative – thankfully, God or Allah or the American voter has given America and the world the great communicator it needs right now

The UK has a mountain of debt on top of a hillock of debt. Who ever takes over next June will face the same problem – they can’t keep fuelling public services at their present level, let alone allow it to grow. Is this such a bad thing? I personally think not, as the expansion was too quickly fuelled. If you look at the raw data, the percentage of numbers and spend on non-front line staff in both health and educational sectors have trebled in the last 12years: and you thought they were spending the money on doctors, nurses and teachers? While the health system investment means you now don’t have to wait 6months for most operations, the educational systems turns out 10% more people with lower educational levels and less able to read and write than it did 12years ago. Where did John Major launch his charter measurement system?

Meanwhile, in the rest of the world, the producers – China, Germany – suffer from lack of demand; while the spending economies – Spain, Bulgaria – have far too many half built villa’s now decaying in the sun. The poor of Africa still starve and face war, and that’s probably the greatest tragedy out of all of this – what did we spend the money on?

So this week, don’t celebrate that the world economy has recovered and all is well – it is not, people still starve, unemployment is still rising, and there’s still that mountain of debt to tackle. If you have a job, be grateful you can feed yourself. You may need to keep high on that same feeling for the next 10 years according to some economists, and we really should be grateful to be able to have that thought – it could have been so much worse.

Good Luck!

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