students are increasingly studying subjects with little employer demand for some bizarre reason
Perhaps I was a greedy b’stard as a teenager, but I did take the jobs market into account in deciding what I studied at university. For balance, I should also allow for a different world, one where science and technology were seen as making stuff happen, putting people on the moon, and the fading echo of Harold Wilson’t white heat of technology. So I was interested in science and later engineering, particularly electronics. This was a time when there seemed to be more hobbies involving people making things; I constructed my first audio system using many parts salvaged from skips where people were throwing out their old 26″ black and white TVs as they got rich enough to move to colour, even though it was on the back of the last double-dip recession the UK has experienced, in the mid 1970s.
At school there was the consideration of whether to go to university. At that time only about 7% of school leavers went to university, and I recall there being books with typical subjects and the sort of jobs that subject helped you into. I was academically capable enough and figured my choice was between electronic engineering and something wider, like Physics. I was totally unaware of any choices for university courses that weren’t part of the mainstream O and A level courses offered at school, which were English, Maths, Physics, Chemistry, Biology, French, German, History, Geography, Music and Art (though I don’t think the school did either of the last two at A level). I chose Physics rather than Electronic engineering because there seemed to be a wider range of jobs possible.
What puzzles me about what university students are increasingly studying is that it seems to be for specific things that offer little potential for employment.
change in university studies, 1996 to 2010
I’ve taken that from this Higher Education Policy Institute report, which I chased up after reading this and this because I just didn’t believe people would do something so bizarre.
If you consider the red line as the baseline (because the number of students was increased by 50% over the Labour administration), what are people really getting into? Nutrition, Journalism, Architecture, Drama, Philosophy, Politics, Marketing.
What are people really getting out of? Production and Manufacturing, American Studies, Agriculture, Sociology, Ophthalmics, French, Computer studies, Social Policy, Software Engineering. Science and Engineering of nearly all sorts is in retreat.
Now we are in a financial storm, and people need to find a load of money to go to university nowadays. What kind of jobs do Drama, Nutrition, Journalism set you up for? Newspapers across the country and shrinking,the Guardian seems to be going titsup, the theatre never makes money and the Arts Council has less taxpayer’s cash to flash around, and there are only so many nutritionists that Britain is going to need in a recession.
There’s more rationale for what people are getting out of. There’s no need for Production and Manufacturing in the UK unless you’re aiming for the high-end, and the sort of thing you needed Computer Studies and Software Engineering for are going to be done in India and eventually Africa.
There is far more information available to prospective students and their parents today, though there is also more uncertainty about what will be in demand in future. For all that, I’d expect people to be running away from what they’re getting in to, for the simple reason that it’s hard to see why people would spend a load of money studying for a dying field (journalism), or one that’s never made money ever (drama). Architecture and Marketing? maybe. The wholesale retreat from the sciences bodes ill for Making It In Great Britain as Saint Vince Cable would have us do. A double whammy for this project is demographics. There will be an awful lot of engineers and scientists from those white heat of technology days who will be quitting the workforce in the next 10 years. Hopefully that will mean opportunities in these fields but if graduates aren’t studying these subjects then those opportunities will go to waste and be exported. They may well be exported anyway, of course, if someone is looking for what to study they should perhap try and get a more accurate analysis of opportunities. The number of budding journalists looking to dive into a shrinking industry indicates this doesn’t happen, unless there is something I am seriously missing.
Britain ejected from the EU – exit ramp engaged
I voted for continued membership of the EEC in 1975, not sure how I got to vote there as I was well under age. That was for a common market, and it’s something that has generally served Europe well over the intervening three decades.
However, there’s always been a religious element to the EU, the dream of a pan-European super state, a United States of Europe. These dreams tend to go to the head of political leaders, and as a result the original dream of a Common market, with harmonised technical and regulatory framework facilitating free movement of goods and services has been corrupted by the vision of a USE.
That vision was evident in the hubris of the creation of the Eurozone. It wasn’t apparent at the time, and much of the intent behind the Eurozone was good-intentioned. There isn’t a free lunch, however, and it seems that we created a way for Germany to bankroll increasing debt in other European states. National populations enjoyed increasing living standards as their previously inflation-prone currencies were stabilised and increased in value by the industry of other national populations. The Eurozone had monetary union but not cultural and productivity union, and these forces acted exceedingly slowly but with great force.
All this became apparent in the credit crunch, and now the search for a solution. In the end the people with the money are going to define the boundary conditions of the solution, and in the Eurozone this is Germany. Unfortunately what works for Germany is somewhat against the national character of many of the other countries, particularly Club Med. Some countries had bad luck – the Irish and the Spanish seem to be victims of bad luck as well as irrational exuberance.
Sarko, you are part of the problem if you blame the eurozone problem on the wrong causes...
And like anything that goes titsup, there’s a search to apportion blame. And our dapper little Frenchman with his lovely wife seems to be keen on one interpretation, that financial deregulation started a shitstorm that is tearing the Euro apart. What better way to fix the problem and improve his re-election chances than by ejecting the obnoxious troublemakers who have built their shaky economy on financial wheeler dealing?
The trouble with trying to fix something that is broken is that you need to tread carefully, reflection and analysis are the keys to success here. The main questions you need to ask, be the faulty component a eurozone or a piece of equipment are
- Is this faulty are are we using it wrong?
- if it is faulty, did it ever work correctly for the purpose it is used for?
- can we identify what is wrong with it?
- does our diagnosis stand up to scrutiny and testing?
- is it economically viable to fix this?
only when we have reasonable clarity can we decide whether to fix or write off and start again.
The assumption being made about the Eurozone is that it is fundamentally sound, does what the component nations want of it and needs fixing. A further assumption is being made that the credit crunch was the source of its current problems.
I’m not so sure. I think it is the inherent differences in lifestyles and attitudes to work across the Eurozone that is giving rise to the problems. I observe that the fire has started in the nations that are less productive, and who have had a history of currency depreciation relative to other Eurozone nations.
performance of various currencies against the erstwhile Deutsche Mark in the decade to 1996
I pinched this from here because I didn’t do the analysis myself. A cursory inspections shows that the Italian Lira, Portuguese escudo and Spanish peseta were on a very different track to the other currencies.
I think the seeds of the current crisis were set from the off, ie the design was wrong. We should have first asked the good people of Greece, Spain, Italy and perhaps Ireland this question on joining the Euro.
You can have a more stable currency more akin to the German Deutsche Mark. That’s the good news. The bad news is that you are going to have to raise productivity or be paid less. How do you feel about that?
Politicians fluffed this question, and borrowed money over the years to cover up the difference in productivity. And this is the money the bond markets want back, and if they’re not going to get it back, they would like to see a way to get the money they lend in future back from the Eurozone. They made the error of assuming all Eurozone debt is equal, they have been disabused of that notion, and they are now raising Cain and demanding that the Eurozone as a whole stands behind any money lent in future. To all intents and purposes that means Germany stands guarantor for the rest, because they’re the only ones with any money left at the moment.
Our little man Sarko, and indeed others, would like to blame it all on financial deregulation. They’re wrong. Deregulation was a different fault, and it was used ably to take up the slack of these inherent contradictions in the Eurozone that would have been apparent earlier, perpetrating property bubbles in Spain and Ireland, losing Greek debt at German rates etc. It allowed things to get worse, and blew up first.
It’s a very bad thing to confuse the symptoms with the cause in any diagnostic job. There is going to be hell to pay. The contradictions of the Eurozone run deep, and would be hard to address in the good times. They are virtually impossible to address in the hard times, and particularly if the symptoms are being tackled without adddressing the causes.
As for Britain, well, if the EU means a United States of Europe then I go along with David Cameron. We are Das Inselreich, an Island Kingdom, we are in Europe but in some ways not of Europe. In the end, if the other countries of the EU desire a more dirigiste economy, then that is not compatible with Britain’s economy and probably not of its national character. We will pay a heavy price for taking a different fork in the road. As the Indy headline said, this is not Britain leaving the EU. It is the EU leaving Britain, taking a path that is not our way.
The price will be heavy. But not as heavy, I fear, as the price that will be paid in unemployment, misery and Depression-era pain as the rest of Europe, particularly Club Med, is economically crash-locked to German standards. It may work. I don’t think it will. The Euro will change from something that was designed to bring Europe to an ever-closer union to one that sets the nations apart, as they are forced into a single economic mould via austerity and deflation. It doesn’t just scare me. It even scares the US Army, which has probably got more cojones than me 
It ain’t going to be fun. But if it was the choice of austerity/deflation or nothing, I’m happy with the nothing. We have very, very, serious problems in the UK, that may be hard to solve as it is. That’ll be rough as hell, but probably not as rough as the enforced austerity the Eurozone is going to go through. Good luck to them, and the best of British to y’all. I hope the eurozone has captains clever enough and economies strong enough to come through the storm. That which does not kill you makes you stronger…
PS Damn – the Economist has this “Lessons of the 1930s” prognosis which is a better argued prognosis of the way ahead for the Euorozone. It’s not inevitable, but it ain’t good.
Merv presses the Panic button – incoming fire observed from all points
It’s not often you hear the early warning sirens go off in finance. They just did, when Mervyn King said this
The crisis in the euro area is one of solvency and not liquidity. And the interconnectedness of major banks means that banking systems, and hence economies, around the world are all
affected. Only the governments directly involved can find a way out of the crisis. But here in the UK, we must try to bolster the resilience of our financial system, better to withstand the
storms that may come in our direction.
What he said was there is little Britain can do to avert this shitstorm. It’s not just banks that need to take actions – for families around Britain the message is equally clear. Get out of debt, acquire no more, and for God’s sake live within your means. If that means beans on toast for the next couple of years then do it. And cancel Christmas if it means going into debt. No spending tastes as good as as debt-free feels when the wolves are howling at the door.
The world doesn’t owe you a living. It isn’t fair that other people get away with things you can’t, but that’s not a reason to give up the fight. A hostile world looks after people that look after themselves. Entitlements can be taken away and debt means someone owns you because they have a claim on your future work…
There may be opportunities for people prepared to fly into the economic storm, but these opportunities will come with stupendous risk. Many will lose their fortunes in it. I may well be one of them, perhaps left only with non-financial investments after the rubble stops falling.
I plan to invest into this shitstorm, because since I have only started investing post-credit-crunch, I do not have much to lose, and the potential gains if I survive the storm and reach the sunlit uplands are high. At no time in the last decade have valuations generally been this good, and they will probably get better when the Euro finally blows. In that time it will be people who hold an internal reference point that can hold their heads, because the storm will mask any external references.The falcon will no longer hear the falconer amidst the noise, and there is no riskless asset class any more that you can measure things against.
One of the obvious questions we could ask ourselves are how did we get here? The clumsy but talented Robert Peston will presumably ask this in his upcoming TV programme How the West Went Bust. He favours one possible explanation.
The overspending hypothesis
We overspent – basically the west got its credit card out and spent like drunken sailors, inflating an illusory increase in living standards without creating the extra wealth to underpin such an increase in living standards.
That is one possible explanation, however, there are other, more troubling possibilities.
The Limits to Growth/Peak Oil hypothesis
One of those was flagged up in a previous crisis nearly four decades ago, in particular in the 1972 report Limits to Growth by the Club of Rome which was one in the eye for the endless boosters who claim that the solution to all economic problems are ‘human ingenuity’. Yes, Warren Buffet, I’m talking about you too 
Basically it postulated that human society needs a certain amount of resources from the world, and that the rich world was using these at a rate higher than could be sustained or renewed. For instance until 1950 human agriculture was generally renewable, whereas now one of our basic requirements, food, is produced by a process that makes a lot more output per worker. However, it does that at the cost of severe degradation of the soil, which used to be in balance with the crops, it uses water unsustainably. Two egregious examples of that are mining groundwater faster than it is renewed in the United States Ogalalla Aquifer and in India in the Punjab where the water table is falling at about a metre a year.
If the components of the limits to growth scenario are significant or increasing, then the prognosis for industrial economics are very bad indeed. Some elements of modern economics are predicated on continual growth. We could probably change these, after all human societies up to the Industrial Revolution managed economically in what was a fairly steady-state and sustainable balance with their environments. However, the experience of many people was certainly not the same as that which most Western democracies feel they are entitled to. Some of the credit card problem could in fact be the attempt by politicians to maintain the entitlements in the face of Limits to Growth problems.
I am going to take a chance on the issues being more a credit card problem, and take note of Jacob no longer ERE that empires fall over longer time-spans than in the movies. However, I have hedged some of my bets there with non-financial investments, because it’s not as clear-cut for me as it is for others.
It’s going to be a rough ride. People are already running for the exit, and I will be pushing past them into the maelstrom. I will lose a lot of money buying into the storm, but I hope to gain even more as it passes in the long years to come. There are no guarantees, however – I could be tossing cash into the fire. However, if the endgame is nigh for industrial economies, then even cash will lose its value. Germans know this already, which is why they aren’t rushing for a second bite of the cherry…
Another question we should really ask ourselves is how come we have become such a greedy bunch of SOBs as to always want the amount of Stuff we can buy to increase? Take a butcher’s hook at this article, telling us breathlessly
Families face ‘lost decade’ as spending power suffers biggest fall since 1950s
That sounds pretty rough, no? Okay, better than that flesh-eating zombies are coming out of Britan’s cemeteries at night and eating our children, but still pretty bad news. Until we read later on
Real average household incomes will be no higher in 2015-16 than in 2002-03, meaning middle-income families will have worked for more than a decade without any increase in living standards.
What exactly do they have against 2002? I mean if they said families living standards were no higher than 1962, when Britain heated its homes with coal fires and rationing had only just ended, then maybe. But 2002? I don’t remember 2002 was that terrible. People, particularly of a religious persuasion, sometimes used to take time out to give thanks for what they had. We should perhaps learn from that and stop being so damned greedy. 2002 was just fine. You may not have had a Kindle or an iPhone then, but if you measure the quality of your life against a yardstick of consumer goods them maybe you need to take a look in the mirror one morning and ask yourself if you’re on the right track.
Angela, the Euro and Forbidden Planet
Even the doughty Economist is adopting the brace position for the demise of the Euro. The markets have been falling for ten days in a row. And yes, I have poked my snout in there and made some purchases – the tragedy of a market fall is you can’t call the bottom so you have to take a few hits between the eyes. I’d say it’s early days yet.
It’s possibly within Angela Merkel’s capability to save the Euro, and yet she chooses not to, at this stage. I can see her point – she could doom the German nation to become the milch cow for the rest of the Eurozone. There is much harrumphing about modifying the European treaties to stop profligate countries overspending, but you have to ask yourself, how the heck does that work? There is no answer to the Josef Stalin question, where are their divisions? How exactly would you pressurise Greece to stop the early retirement and tax dodging? If you fine them, then the problem gets worse. You have to park tanks on the lawn. After all, in a working transferunion like the United States, they still haven’t found a way to stop California voting to stop taxing but carry on spending. In a democracy there are usually more votes for spending than for saving
I believe the reason that the federal government can’t park tanks on Arnold Schwarzenegger’s lawn is because the US military isn’t allowed to act on behalf of the Federal government against US citizens on US soil, but it’s probably the only way to stop the economic transfer. In the end the only way to stop one group of people hell-bent on behaving in a way you don’t like is to apply the threat of overwhelming force. Understandably, there is trepidation in Germany about sleepwalking into that kind of situation in Europe.
So it seems that Angela Merkel is drawn into the scenario painted in the movie Forbidden Planet, where in trying to avoid a deep-rooted fear, the energy lends power to unconscious forces that start to destroy something else she holds dear, which is the Euro.
Where are the leaders who will save Democracy in Europe
Across Europe we are seeing democracy suspended for technocracy. Papandreou in Greece, Berlusconi in Italy, where will the next democratic leader be ejected for the sake of holding the party line on the euro?
For several decades in the West we have become soft and failed to adapt our democracies to modern conditions of a more interdependent world. At the moment we seem to favour suspending elected leaders for imposed ones who can press through ‘reforms’. In the immortal words of Herman van Rompuy
Rompuy to Italians: You need reforms, not elections. Italians to Rompuy: Remind me again, when did we vote you in?
when speaking in Florence, “the country needs reforms, not elections”
Now Herman Van Rompuy may well be right, but he’s right in the wrong way, because it’s not his call. It is the citizens of Italy to make that call, thanks very much. In the end if the Italians want to make a right cod’s of their economy, that’s their prerogative. Obviously if they want to borrow other people’s money then there are limits to what they can do, but the decision should always rest with the Italians. They could use reform. They could do with not electing septuagenerian bunga-bunga hosts again and again, but in the end if that’s really what they want to do then so be it.
As for Rompuy, he begs the question Josef Stalin asked about the Pope’s power base. “Where are his divisions?”
Clearly something has gone wrong with democracy in the modern world, and it’s not just limited to Europe. Politicians have discovered they can get voted in more easily by promising more than they can deliver with the resources they can tax. So they simply bung this on the national credit card and hope they’re in the right place when the music stops. Maybe we need to work out a new form of democracy, where a second chamber is voted in for ten year terms, but half are up for re-election every five years. This could be tasked with balancing the long term economic future over the multi-parliament term, things like pensions and energy/pollution/climate change that require thinking over decades rather than years, and controlling say 25% of the tax take. Plus a British version of the Stability and Growth Pact to go into the Constitution that we don’t have. The European SGP isn’t worth the steam off a cup of tea because of the aforementioned lack of divisions to enforce it, but on a national scale it would work well – or highlight that something irregular was going on.
One way or another, we need to improve the way democracy interacts with the long and the short term, so we don’t overburden our grandchildren with the debts to pay for jam today. Outsourcing the problem to unelected technocrats who can dictate solutions without having to face the poor saps that will be working to resource the solutions is a very bad alternative.
As a callow youth I voted for Britain’s continued membership of the EEC in 1975. Faced with the same information I’d do the same again – the freedom of movement and trade I am all for. However, I am not for the United States of Europe. Nor, it seems, are many of those even in the Eurozone. There isn’t enough common cause between the Germans and the Greeks for the Germans to want to sponsor the difference in lifestyle. I heard enough of my grandmother in Germany grousing about the extra taxes levied on her pension to sponsor the unification of West and East Germany (she was from West Germany). They just ain’t going to do it for the Italians, and Spanish, and the Portuguese. Yes, Germany has benefited from having Southern Europe as ballast to keep the Euro down a little. And the Germans probably did loan a lot of what Southern Europe owe, and they aren’t going to be getting that back. That’s capitalism for you.
It wasn’t apparent at the time to many people, but harnessing the disparate cultures and people of Europe to a single currency was going to cause stresses where they didn’t match up with each other. They got away with it for 10 years, but the tide went out with the credit crunch and we could see who was caught short. It’s time to accept the mistake, and then back off. Carefully. We don’t have to then throw our toys out of the pram and dismantle the Common Market, as some of the EU technocrats opine, let’s hear it once again from Herman van Rompuy:
Let us be clear: we will not “prune” the Eurozone to a more selective club. That would be contrary to the letter and the spirit of the European political pact, as embodied in the Treaties. If the Eurozone’s integrity would not be preserved, one should not take the continued functioning of the Internal Market for granted.
Herman, old boy, sometimes there are no good options. I would rather be free and skint than enslaved and wealthy. If we need to suspend the working of the Internal Market while the eurozone sorts itself out, then so be it. Far better to do that, than to suspend the working of democracy while the technocrats ‘fix’ the economy. For the record, the EU transcript of the text of Herman’s speech is here. There is a lot of good stuff, and I came a way with a greater respect for van Rompuy’s intelligence. However, leading people is not all about intelligence. You have to take people with you, and here the EU leadership seem desperately out of their depth.
Finally, lest we forget what happens when we prize efficiency over freedom, the last time there was humongous economic turmoil in Europe efficiency was brought to bear on the subject with extreme prejudice by one of the most capable of European nations. The trains did run on time but a lot of people died, and this sort of thing happened
German troops march through the Arc de Triomphe, Paris, August 10th, 1940
More recently, Germany has also had experience of a tranferunion, when West Germany raised taxes to buy out the East German mark at par, vastly overpaying by about three to one. The cost of unification caused some grumbling in West German taxpayers who paid for it, and at least there was common cause, family and historic ties and a common language. Inflating the money supply or continual transfer of money to Club Med may well fix the probelms of the Euro, but unique among European nations, Germany had experienced the pain of both courses of action before.
So before the technocrats of Europe badger Angela Merkel to pay up or to permit the ECB to become the lender of last resort that the eurozone so desperately needs, they should remind themselves how it was that the Germans became so good at running an economy, indeed pulling themselves out from the ashes of WW2, with a big hat-tip to the statesmanship of the Marshall Plan.
It is because they experienced what happens when the government borrows on the never never and prints money to make up the difference. I heard my great-grandmother describe what life was like then, and this scar runs deep within the German psyche, that you just don’t print money because no good will come of it.
There are some kinds of knowledge that are won at great cost through experience. This is why the Germans, who are the only nation in the Eurozone that can credibly resource a stop of the bloodletting, is unlikely to release the dead hand of historical experience and go ‘hell, yeah’ to the technocrats advocating a transferunion or ECB unlimited bond purchases.
The technocrats should be careful what they wish for. It is easy for technocratically designed utopias to become dystopias when the simplistic technocratic assumptions about people get smashed on the rocks of human nature in its irrational form.
We need leadership that can acknowledge past mistakes and seek an orderly solution to the strains ripping the eurozone apart. Yesterday, on the 11th hour of the eleventh month, we held a two minutes’ silence in the memory of the Fallen on all sides. I hope that we do not hear the sound of gunfire in Europe in my lifetime, all because some jumped-up unelected twits couldn’t let go of their idea of the United States of Europe, and force the Germans to impose Germanic austerity on Club Med, which will cause horrific social discord and people will fall for the siren song of ‘strong leadership’. Let’s just all accept we cocked up here, roll back to the last known good state and take things slowly forward at their own pace.
The flame of self-determination and democracy is flickering in the wind of technocratic expedience. It needs some hands put around it and some TLC. We’re going to be a lot poorer in future, but we will still have a very good quality of life. Let’s try and make sure we are still free to determine our future, even screw it up royally like the Greeks, rather than be enslaved to economic expediency.
past the point of no return
The original wartime meaning of the point of no return is easy enough to work out. For an aircraft it is when slightly more than half the fuel has been used – in a single-hop journey the craft is then committed to carry on to its destination, for insufficient fuel reserves remain to return to the point of origin.
It isn’t so easy to determine the point of no return for a complex feedback system like the economy. In the Greek and Euro debacle I feel that time has come. Even in the UK economy, it feels like the rollercoaster has crested the rise, and we are staring at an uncontrolled descent. So much effort has been thrown at the Greek problem, and yet still more is required. It seem that the effort to fight the issues have failed – for the Greeks they could never work, and for the rest of the Eurozone the price seems too high.
Some ugly truths are becoming apparent, too. The people of a nation state do not appear to be in control of their own destiny. Yes, they were greedy, their politicians lied on entry to the Eurozone and they spent money that wasn’t theirs to spend.
Somewhere along the line, Greeks seem to have unwittingly surrendered their right to call which of the bad options facing them they wish to take up. The FT offers up a pretty grim scenario for what an uncontrolled exit would look like.
I’m not sure they’ve still got the option. Sitting here in the good ship Europe it looks like every economic indicator is heading towards the red, as the second dip comes our way. If it feels like this in the UK outside the Eurozone, then in Italy or France it must feel pretty dangerous, and as for Greece, looks like they no longer have any control of where they are going anyway. Outside forces even seem to be ready to ping the odious Silvio Bunga Bunga Berlusconi from Italy.
Throughout Europe there seems to be a desperate lack of leadership and direction. Each mini-crisis is fought as if it were an isolated incident. It isn’t. For ten years the West has been living way beyond its means, and in Europe the Eurozone was designed without a lender of last resort. Or perhaps it was always assumed that the lender of last resort was Germany, which seems the only economy able to create real wealth, assisted by the ballast of the rest of Europe to drag the currency down.
Unlike the aircraft, the point of no return in economic affairs seems hard to foresee, and is only readily identifiable with hindsight. Nevertheless, I’ll stick my neck out and say I figure we will pass it by Christmas. The next year will be a hazardous time, though shot through with opportunities.
There isn’t enough time now to forestall the flameout of the financial system – my financial net worth could be destroyed in the maelstrom to come. I’ve left it too late to try and convert my net worth into non-financial investments, and these are illiquid and often immobile to boot. I’m not even that sure how well the canonical hedge against financial collapse, gold would hold up. You need something that has value in the immediate aftermath of a financial collapse, not something that has value five years down the line, when there is some semblance of an economy that can value gold, and, more to the point, offer you something of value in exchange for it.
So the only logical thing is to play the second dip as if the financial system will recover. I’me already chuffed and having picked up Tesco in the August crapshoot for less than Warren Buffett paid for his share.
It is at points of great change that opportunities arise. If I am going to play on the principle that the financial system will recover, then I expect that the second dip will hold opportunities…
Greece – Cradle of Democracy once again?
The good citizens of Greece lived in a military dictatorship within my living memory. That was along time ago, but it seems that in the transition to a democracy they didn’t get round to sorting out all the paraphernalia necessary to a modern nation state. Like collecting taxes and all that jazz.
Everybody looked the other way when Greece entered the euro, but it seems the old boy Warren Buffett had a point when he wryly observed
After all, you only find out who is swimming naked when the tide goes out.
A lot economic skinny-dippers may be caught out soon, but the Greeks were way ahead of the pack. They have got a shedload of serious economic pain coming their way, but so far it seems that everybody else has been trying to stall things to shift their money out of harm’s way and protect their own interests.
So far most of this has been done behind closed doors, and it seems to be loading eye-watering future economic pain onto the Greeks. It seems that finally politics has met finance.
The Greeks would have to endure decades of austerity if they want Germany’s money. That’s fair enough, it’s always the people with the money who get to call the conditions, since money is crystallised power over other people. You want mine, well, it’s on my terms or not at all.
However, at least now the people will be asked whether they are prepared to pay the price for Germany’s money. The alternative, in which their financial system implodes and the country grinds to a halt, is unknown and probably pretty rough.
The favoured choice depends – for the young it’s almost a no-brainer. If you have hardly any assets, vote no – and be prepared to move, if necessary. For the rich, well, presumably you’ve spirited your money out of the country and turned it into hard assets, like London property For the old, well, perhaps Germany’s money is worth the price. For those with fixed assets, well, it’s a hard one to call, as those assets may be confiscated by taxation if you take the money, or destroyed in the upheaval.
Whatever happens, though, it is about time that the people that are going to have to endure the downside of these options get the choice in which option they take.
The original Common Market was created to bind Germany and France together after the Second World War. It’s been extended to bind all sorts together, and perhaps people sleepwalked into the Eurozone without realising that it would necessitate a United States of Europe.
Now Europe is a collection of nations with differing languages, cultures and long histories. There is less common cause than say in the United States of America. There the states had been settled over a century or so, and even there the culture of the North and South were different enough to necessitate a grisly Civil War before Union.
I’m not sure the people of Europe are ready for a United States of Europe. There is no common language, and not really a common culture. Yes, the countries of Europe are culturally more similar to each other than they are to, say, China or Japan. But I think it is coming clear that they aren’t similar enough to be prepared for the sort of intra EU transfers of money that go on in the US, or even in the UK from London to everywhere else.
And it’s about time that they were asked. Would have been better before the creation of the Eurozone, but at least the Greeks are returning to the principle. They have no good options, because in using borrowed money to finance their lifestyles they have become debt-slaves. But it is right to ask them which of the bad options they want to live with in future. It’s called democracy.
Cameron says Britons should pay down debt, then flubs it
Dodgy Dave, trying to scrape the barrel in searching for the last vestiges of grit in the British collective psyche, started off well by suggesting we “man up and pay down your credit card, suckas”. Well, he put it with an Eton twang in different words, but that’s what he meant. Apparently we have run up a collective credit card bill of £57Bn.
So far so good, but he backtracked when he was warmed up to the paradox of thrift and the British Retail Consortium suggested this was incompatible with growth. That’s always the trouble with debt, it never looks like a good time to pay it down, because the original good time you had running up the debt is now a distant memory, and you get to miss out on new good times.
The trouble is, that debt means that somebody owns you. Some of the time you can run away from the debt, with a bankruptcy or an IVA. In a modern capitalist society you need to either have no assets, in which case you can do that. I can’t do that, because I have assets and I presume I’d get cleaned out of assets before I could walk away from the rest. So I avoid buying stuff I can’t afford.
Even if you don’t walk away from it, debt limits your options. Owe a mortgage on a house and you can’t afford to take time out from your job or shift your work:life balance to less work and more life. You have to pay high rates of tax if you need to spend the money you are left with on the debt you incurred servicing your lifestyle. One of the other paradoxes of thrift is that once you have reduced your outgoings by eliminating debt (and a mortgage is still a debt) you can save at a much higher rate, because you can save in tax-efficient ways.
I happen to think Dave is right. Pay down your debts, suckas. Debt incurred to buy consumer goods is never good debt. I can’t afford 1 a Maserati GT to go to work. So guess what? I don’t buy one. It’s not hard, is it
Consumer debt traps people is miserable lives doing miserable jobs so they can buy crap that they see on TV. Britain has been doing too much of this over the last 20 years. It’s time to take the red pill and wise up, because it can’t go on for ever. If you really have no assets, then sure, carry on, play the system for all it’s worth. You will never be free of the threat of the repo-man, but you may have a decent hedonistic lifestyle for a while.
It’s the middle classes that I don’t get – those that acquire debts and assets at the same time.It seems to be a curious version of the iron cage where people trap themselves into debt slavery for the TV dream. It can’t go on for ever, and you have to opt out or lose out. At least the guys that know they have nothing and find mugs enough to lend them money know they have nothing. That’s better than thinking you have something only to find out you don’t when the repo-man comes. You only have assets when you have no debts that could force you to liquidate what you have.
Not all debt is bad, borrow for productive assets like machinery and you can grow your business faster than you could otherwise. But pretty much all of what the British consumer is offered is bad, from credit cards to student loans to >80% mortgages. People managed without credit cards before the 1970s, and in the hard times to come there’s a good case to be made to discourage all unsecured consumer debt. It’s just too dangerous an economic weapon in people that believe the TV ads telling them
“you can have it all, now. Because you’re worth it”.
The reality is that you generally aren’t worth it and you can’t have it all now without shafting your future self, because that’s who you’re borrowing from, not the bank.
I’m with the original Dave. Sooner or later we have to live within our means. And since we borrowed for the party from our future selves a while back, we’ve now become those future selves. We can’t build an economy on endlessly ratcheting real debt values, because at some point we will run out of mugs to lend us more money.
1 Okay, so it appears I could afford to buy one secondhand if I stick to the lower part of the price range. But I’d have to do without a lot of other things or capabilities that mean more to me than being a ponce and driving into work in a Maserati GT.
Bankers say don’t mess with us – classic special interest pleading
Another day, another Mandy Rice-Davies moment. Our bankers seem to be getting their mates on the case of helping them avoid the consequences of their actions. The Item club is warning of all sorts of doom and destruction if we swap universal banking for investment banking and retail banking. Well, actually they say we’ll lose 0.3% of GDP.
Now I’m not so sure that’s a bad deal. We lost an awful lot of GDP when it all went titsup in 2008, so perhaps a little bit less in exchange for not having a near death experience might be okay. I think Vickers is tackling the wrong thing. Instead of creating a general form of the Glass-Steagall Act, howsabout making FSCS compensation conditional.
If a bank wants to offer an account protected under the FSCS then it has to operate as a retail bank and ringfenced. No compulsion, but then strip FSCS compensation from the likes of Barclays and the rest of the BSD brigade. And force them to print a health warning on all their ads in no less than 8pt type for a magazine ad to the effect of
This account is not protected by the FSCS. You may lose all your money if we screw up like we did in 2007/8
and print this on the bottom of every statement, email and other bank communication. Widows and orphans will go with the retail banks, and the sort of people that were attracted to Icesave will go with Barclays and their ilk.
Retail savers don’t need a universal FSCS protection scheme. We just need the option. I’m happy to save in a shares ISA, knowing that I could lose most of it in a market crash. However, I’d like to have somewhere I could park cash without the same feeling that it could all die quietly in the night. I don’t expect cash to give me a return, I’d just like to find it still there when I come back for it.
Others of a more racy disposition might want to take their chance with Barclays, and presumably be compensated with more interest. As long as their noses are continually rubbed into the fact they are giving BSDs the use of their money and they have a history of good returns combined with total annihilation then that’s fine. Consumer choice is what capitalism is meant to be good at, so if Barclays and their buddies want to gamble with their customers cash then let them – as long as the customers are easy with the risk.
UKAR gets on the dog-and-bone to chavs and tells them to pay mortgage before Sky
Sounds all right to me, what’s not to like? Deborah Orr of the Grauniad thought it patronising, but it really is a fair cop. UK Asset Resolution, which represents the taxpayers of this sceptred isle, are using credit checks and have identified 30,000 customers who are going to be in the brown stuff when interest rates rise. These checks will flag those who have rising unsecured debts. Not all of these will be chavs, of course, some will be people who have genuinely fallen on hard times since the heady days of Northern Rock’s 125% mortgages.
However, if you are the sort that prioritises the continued supply of sport on TV over keeping a roof over your head, then to be honest you shouldn’t really be in charge of a mortgage. Some financial vehicles need a modicum of training to drive…
It’s hard to argue with the appropriately named UKAR head honcho Richard Banks
“They need to think about what is their most important debt. It is not their credit card or renewing their Sky subscription, or going out for the latest mobile technology. It is their mortgage.”
Quite. If you haven’t jumped to that then there’s nothing patronising about it
Apart from that I am generally with the cut of Deborah Orr’s argument. I’m not generally with the Graun’s view of Margaret Thatcher, who did sort out some pretty toxic stuff. However, Thatcher’s abuse of power in seizing control of some collectively owned assets and flogging them off to buy votes was a devastating stroke of evil genius, and council house sales started the ball rolling.
I recall from many decades ago genuinely mixed council housing which had aspirational blue collar families as well as a few of what we now know as chavs. There were some sink estates too, but council housing was generally far more mixed in family incomes that social housing appears to be now.
What Thatcher’s move did, as well as buying her three elections, was give free housing capital to an awful lot of people, which in itself wasn’t so bad, but it bottom-sliced what was to become social housing, concentrating people by the lack of income and wealth. She may not have meant to do that, but it seems to be what has all too often happened. And it forced upon us the current dysfunctional housing market which seems to make nobody particularly happy.
Most jobs in Britain don’t pay enough to be able to afford a house at 3.5 times income, and I would go further in asserting that the standard of financial education is such that there are a lot of people who had mortgages that didn’t understand what they were for. They appeared to be under the misapprehension that they were virtual ATMs which regularly doled out free money, to be used for holidays or Tarquin and Jemima’s school fees, rather than a way of buying a damned expensive consumer good called a house, secured upon the house.
This fact that most families didn’t earn enough to be able to buy a house was acknowledged in the council house system, where only the rich or the frugal owned their houses, but now it makes us hostage to working for The Man for 40 years, plus crazy asset bubbles.
So though I’m all for UKAR ringing up people to tell them to pay the mortgage before their Sky subscription, perhaps we do need to think about whether owner-occupation is such a great idea in a globalised world of unstable jobs. How the heck we row back from here I have no idea, but we do seem to have got ourselves into a hole. Thanks a lot, Thatch…