Saturday, 2 November 2013

The Economics of 'Growth'

I am not a statistician, but I have some experience in using 'statistics' to make a point on occassion, or to persuade an audience that 'something' is happening or must be done. I have sufficient knowledge of the manner in which the data is is collected, how it is processed and sometimes manipulated, to be very suspicious when they are used by politicians, civil servants and certain 'scientists'. The majority of these folk are, like me, broadly 'illiterate' with regard to the significance of a whole range of things the raw 'numbers' appear to indicate, and completely illiterate when it comes to understanding the very complex mathematical 'models' used to work out what the data means.

Thus, when the Treasury (or a politician) talks about "economic growth" I take it with a large dose of salt. Why? Well, I have several reasons. First of all, I am one of those awkward people like Thomas the Twin (Thomas Didymus or Doubting Thomas). I tend to believe what I can see, feel, measure physically (THAT may surprise a few folk) and things like statistics tend to show only a small portion of the bigger picture. Secondly, in my lifetime, world population has gone from some 2 billion to 7 billion, and the world is creaking ecologically as a result. We are running out of all manner of things (I don't think hydrocarbon fuel is one of them - we keep finding more untapped 'reserves), but water and food certainly are. So is space for housing.

Yet all economists, and all national economies are built around the supposition that populations, wealth acquisition, commercial and industrial expansion, will continue to grow. The whole kettle of fish is built on the assumption that we will continue to buy and discard ever increasing quantities of 'consumer' goods. But, as far as I can see, this bubble is alreay almost at bursting point. Populations in most developed countries are either static, or declining if one removes the mass migrations coming in from less developed countries. The basket of 'goodies' that is used by the Treasury to measure 'growth' in the economy of any nation is full of some pretty ephemeral items. Like salaries and wages, like orders being filled, unemployment numbers, and new registrations of businesses. Inflation is adjusted for in these measurements, but everyone massages that figure to the point of worthlessness as the truth might scare away investors, or provoke revolution.

We hear of 'new' industries replacing old ones, which is true, but these new industries don't employ the vast numbers needed to address unemployment. Often they have the reverse effect. Unemployment in many countriues is also a seasonal thing. In Europe quite a number of the 'pavement cafe' operators shed staff (some even close completely) in the winter, and reopen in the Spring/Summer. They and their staff are 'unemployed' during the winter months, which slews these figures. If the banks have a 'good' year, that boosts the 'balance of trade' and so we see 'growth' - but it seldom feeds down to the rest of us.

Another major reason I doubt the 'growth' economics model can be sustained is that I don't think populations can continue to expand. In 1945, Britain had a population of some 20 million. It is now 60 million and growing, yet, even as it grows, it isn't growth due to births - it is boosted by migration and large migrant families. Unemployment keeps increasing, and, because we have a socialist system of 'benefits' so does the costz of running it. Ironically, as the population grows, the actual contributions to pensions, social benefits and so on from tax on the employed is in danger of falling off. Thus, our governments are increasingly compelled to engage in some dubious economic tactics to cover their spending plans. They borrow money on an eye watering scale, always on the promise that 'growth' will enable then to repay it. They increase taxes, adjust some of the 'hidden' taxation to increase its impact and encourage everyopne to spend, spend, spend - so the economy can 'grow'.

However, demographically, there are signs the world population is not going to continue its upward growth. China is seeing the start of a downturn, largely because a preference for male children means they now have an almost 2 to 1 male to female population of under 30s. India is also starting to show similar signs. Germany's population was found recently to be 1,8 million less than was estimated, and similar patterns are emerging elsewhere. So, if populations are not 'growing' naturally, how can we sustain 'economic growth' and continue to buy today and pay with tomorrow's 'growth'?

I suggest that we need, urgently, to find a new economic model. One which is sustainable, fair and does not involve stepping back to subsistence living for our populations while those who have done well out of the economics of 'growth' and literally robbed the bank, bask in luxury.


  1. Slim Jim opines: I think the problem lies in the current capitalist model in the Western world. Many will say that capitalism is the problem, but I don't think it is. It is the best of a bad bunch, so to speak. It also has been manipulated by politicians to create an illusion of growth, based on debt. Also, fractional reserve banking needs a reformation, no doubt about that. The fact is that we have spent our children's and our grandchildren's inheritance through reckless borrowing and redistribution. Instead of plucking gently the feathers of the Golden Goose, we have been throttling and buggering it senseless!

    I'm not sure if the UK coalition government has been doing the right thing, but one thing's for sure - the labour party would undoubtedly have made things a lot worse. We only need to look to France to see how not to do it!

    We have also got the 'problem' of the emerging economies. We have exported our manufacturing base to them, yet complain that we are lagging behind. We cannot continue to rely on 'services' for our economic growth at the levels we want. We have also signed up to various international or supranational treaties and agreements which are frankly the problem, not the solution. I refer to the EUSSR and the ECHR as examples. What is the solution then? If I could answer that, I wouldn't be sitting here responding to the Monk's excellent posts. However, I really think that we need to be realistic and get used to so-called 'austerity' at levels we never dreamed of. Incidentally, 'austerity' is hardly a 0.5% reduction in total government spending, is it? Less government spending and more tax cuts will be a start, but that will require a revolutionary change in the political classes of the Western world. Frankly, we're all doomed!

  2. Josephus agrees entirely with Slim Jim, whatever the coalition is doing or not doing the acts and/or omissions are probably significantly less damaging than those which Labour under Millbean would commit.

    Personally, my selfish gene was hoping for some mini inflation last month to push the CPI above its current 2.7%, those of us blessed with public sector pensions will be getting a much larger rise than the average working, frequently hard working, Joe in the street. (I cannot speak for Jean on the street as she doesn't pay tax and national insurance!)

    There are two things that I think our "current Western Capitalist" system could do that would make life more tolerable for the minions without necessarily curdling the Fat-Cats' cream. The first would cause unemployment as the ants-nest of admin posts would disappear in favour of expert hit-squads and that is simply to abolish income tax for all "average" workers and focus the released resources on getting the billions owed or evaded by "Mega-Corp" organisations.

    Instead of getting £10 from 10 million workers, get £10,000,000 from 10 Mega-Corps and the sum balances, except that Joe average can have more disposable income which in itself should help the economy.

    Secondly, and this could ride piggy-back on the revision of tax, as more low-paid jobs would appear [caveat: see posts passim re: minimum wage.] would be to tackle the grey economy. Far too much is done on the sly, I myself paid a tradesman in cash only last month. It saved me money, it deprives the Chancellor of taxation, but it should not be necessary to do this in a balanced economy. I am afraid that this would men that Jean on the street would be paying her dues, but there again, she would have improved health care.

    To much of the economic mechanisms of miserable European, but specifically British, systems is not revealed in any statistical commentary, it is concealed either because it is politically sensitive or it is illegal, why do we tolerate this? OK, the answer to why is that only in totalitarian states can it work, and even in those, there is underground and back-handed dealing.

    tl;dr Target the tax man on the mega rich, leave Joe alone. Target Jean and get her off benefit and paying tax.