I afraid I think that Jam today is better than Jam tomorrow is at the heart of most voting decisions so Mr Work-Hard-Pay-your-Debts would struggle to get 10% of voters, never mind 30%. He would be ridiculed by the other parties and the press and the business community.
I also suspect he would have to be a socialist and accept the limitations that puts on an economy. Modern capitalism depends on economic growth. Economic growth only occurs when there is increased debt. For it is the debt that creates the growth.
I was recently asked by my daughter (12) what money was, what each note represented. She had been told in school (by a teacher - an RE teacher it has to be said) that each five-pound note represented a tiny bit of gold held in the Bank of England. My daughter's solution to the current economic problems was simple - find more gold, (or make it - chemistry is not her strong point) then there will be enough for everyone.
Spurred on by my complete inability to explain properly why that would not work I tried to find a better explanation. I heard it on Radio 5 one morning at about 5:30am. An economist was asked where money goes when an economy shrinks. His answer, it doesn't go anywhere, it never really existed.
Much of the value of a country's economy is debt owed to that economy, by other countries, by its own people, by business. Effectively money that does not exist. So when debt levels reduce, the 'size' of the economy reduces with it. That is exactly what is happening now. Debt levels are reducing through the reduction in the level of credit available and the number of loans (toxic assets) which are not now expected to be repaid and are being written off.
That means less money to spend, because while the money owed does not exist we still manage to use it, and jobs disappear.
There are two solutions to a shrinking economy, we go down the route of Mr Work-Hard-Pay-Your-Debts and accept a reduced money supply. We would then have an economy which is stable and a little boring. Living standards would not increase but inflation would be, just about, defeated. Boring, dull, stable, safe.
Or we throw money at the problem, hoping, just hoping that we can keep the cogs going round long enough to get out of this, totally inevitable slump.
At the same time, however, we are creating the conditions for the next financial collapse.
Sadly, most people are going to prefer the jam today option and our kids and their kids will be paying for this mess.
I disagree, but at this point I must either write a new post or let this one go completely over the top. Remember, the original idea was to mock the commonplace idea of how to get out of this crisis - which I have already criticized in depth a couple of months ago (though at the time I was hoping that President-Elect Obama would not be taken in by it). Just remember one thing: the most successful politiician in the history of this country was the man who promised "nothing but blood, toil, tears and sweat". In times of crisis, nothing can quite silence the man who tells the truth, tells it consistently, and refuses to be corrupted. Even Meg Thug's popularity, such as it was, was due to the perception that she would call a spade a spade.
Your daughter's teacher wasn't completely wrong, merely using out of date information. Once, nations were on the gold standard. It worked moderately well. However, gold isn't valuable in and of itself; so the value of gold fluctuates wildly, so the value of gold fluctuated. Now, we could have gone over to, say, the silver standard, or the wheat standard, or the oil standard. By going to the trade standard, the value of money is backed by *everything*, every resource that can be taxed. This protects the value of money from fluctations in the value of any one resource. This worked well until the financial sector grew so large.
Your daughter might be interested to know that during the Great Depression large numbers of unemployed Australians followed her advice, and panned the accessible rivers for gold. We had the second highest unemployment in the world - second only to Germany - and yet remained a stable democracy.
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Date: 2009-03-06 09:53 am (UTC)I also suspect he would have to be a socialist and accept the limitations that puts on an economy. Modern capitalism depends on economic growth. Economic growth only occurs when there is increased debt. For it is the debt that creates the growth.
I was recently asked by my daughter (12) what money was, what each note represented. She had been told in school (by a teacher - an RE teacher it has to be said) that each five-pound note represented a tiny bit of gold held in the Bank of England. My daughter's solution to the current economic problems was simple - find more gold, (or make it - chemistry is not her strong point) then there will be enough for everyone.
Spurred on by my complete inability to explain properly why that would not work I tried to find a better explanation. I heard it on Radio 5 one morning at about 5:30am. An economist was asked where money goes when an economy shrinks. His answer, it doesn't go anywhere, it never really existed.
Much of the value of a country's economy is debt owed to that economy, by other countries, by its own people, by business. Effectively money that does not exist. So when debt levels reduce, the 'size' of the economy reduces with it. That is exactly what is happening now. Debt levels are reducing through the reduction in the level of credit available and the number of loans (toxic assets) which are not now expected to be repaid and are being written off.
That means less money to spend, because while the money owed does not exist we still manage to use it, and jobs disappear.
There are two solutions to a shrinking economy, we go down the route of Mr Work-Hard-Pay-Your-Debts and accept a reduced money supply. We would then have an economy which is stable and a little boring. Living standards would not increase but inflation would be, just about, defeated. Boring, dull, stable, safe.
Or we throw money at the problem, hoping, just hoping that we can keep the cogs going round long enough to get out of this, totally inevitable slump.
At the same time, however, we are creating the conditions for the next financial collapse.
Sadly, most people are going to prefer the jam today option and our kids and their kids will be paying for this mess.
no subject
Date: 2009-03-06 10:14 am (UTC)no subject
Date: 2009-03-17 01:13 am (UTC)Once, nations were on the gold standard. It worked moderately well. However, gold isn't valuable in and of itself; so the value of gold fluctuates wildly, so the value of gold fluctuated. Now, we could have gone over to, say, the silver standard, or the wheat standard, or the oil standard. By going to the trade standard, the value of money is backed by *everything*, every resource that can be taxed. This protects the value of money from fluctations in the value of any one resource. This worked well until the financial sector grew so large.
Your daughter might be interested to know that during the Great Depression large numbers of unemployed Australians followed her advice, and panned the accessible rivers for gold. We had the second highest unemployment in the world - second only to Germany - and yet remained a stable democracy.