Monday, 16 December 2013

Austerity's Catch-22

Remember this piece by Joseph Heller that sets out the problem for a scared fighter pilot trying to get grounded in WW2? 
………There was only one catch and that was Catch-22, which specified that a concern for one's safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn't, but if he were sane he had to fly them. If he flew them he was crazy and didn't have to; but if he didn't want to he was sane and had to.  Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle.....
Keep your feet on the ground

Perhaps Joseph Heller has had a hand in designing the current recession:
Recovery in advanced countries where high levels of debt have coexisted with negative real interest rates for many years must require increased public spending, tax cuts, QE or other measures that may well, in the medium term, cause interest rates and rise choke off growth.  So, like Yossarian in Catch-22 one can only let out a respectful whistle at the perfect symmetry of our predicament.  To escape this vicious circle of low growth, no growth, etc - there have been two standout tactics and both are a kind of madness, they are:

Wednesday, 4 December 2013

Life "Sans Gaz"

The great and the good of the economics world have been debating the possibility of growth without bubbles.  Larry Summers and other commentators have proposed that the dynamic growth enjoyed by the West between 1994 and 2008 was due to a stream of bubbles (dotcom, the euro, the credit boom and commodities) that kept growth rates artificially high.  Without a stream of future bubbles the developed world may not be able to grow at a rate that improves living standards.  Fortunately human being are well adapted to bubble recognition  (it occurs when the capital gain an investor expects over time is much greater than the potential change in interest rates in that same time period) and once one person has spotted a bubble we all dive in!
Stripping out these instances of temporary and unsustainable exuberance we are left will a pretty anemic performance in global GDP growth.  The inability to grow without market bubbles providing the fuel to the global engine has been coined secular stagnation – low growth, high debts, falling prices and high unemployment.
Here's to the next bubble
Before we all throw in the towel,  it's possible that the champagne that has been on ice for five years is about to pop its cork in a shower of new bubbles – the housing market is building up a head of steam in a number of key markets – parts of the US, the UK, Germany and parts of Scandinavia. In other markets there is still a considerable over hang in supply (Spain, Ireland, Greece and parts of the US) and the pain that investors and lenders have been through ought be burned into their collective consciousness.

Monday, 2 December 2013

All work and no pay

The next generation are taking over, after 25 years of being the sole bread winner in the family two of my three daughters are about to step into the world of work – well let’s hope so!  Being equipped with a degree is no longer a passport to wealth and prosperity it may not even be enough to secure a job.  One of these daughters has taken the option to take a year out from University to gain experience working for a number of business as an intern during a "year in industry", which is sandwiched between her 2nd and 3rd years.  She secured three internships, where she is working for no money to gain experience; some might say this has been a pretty poor introduction to the world of work.  The reality is that she has the opportunity to work for three outstanding companies and has already been offered a permanent position!  This “year in industry” seems an eminently sensible idea, she gets to see different businesses and roles close up and they get the chance to check her out.
Get on yer bike!

My daughter’s situation is a microcosm of the whole job market, which has been a buyer’s market since 2007.  Those of us who work in the private sector have had to survive wholesale downsizing, salary freezes, smaller or no bonuses and a broader squeeze on company benefits (pensions, etc).  This reduction in take home pay has reduced demand and slowed growth; but this flexibility has allowed the UK economy to maintain relatively high levels of employment.  Now the economy is growing again the somewhat vexed question is - how long will it take for this increased economic activity to feed through into higher take home pay and rising living standards?  I say vexed because living standards have fallen by as much at 5% over the last 5 years and in real terms by much more.

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