Sunday, 28 February 2010

Boring is hard to sell

Perhaps it's just a reflection of my experience, but I simply don't think general life is very exciting. It has its moments, of course it does, there are spells of huge joy and deep misery. Most of it, however, is just getting on with getting on. I know I am luckier than most in that my field of work has provided variety and intellectual challenge of a type not many enjoy. When we look at the general scheme of life, though, it is not full of thrills.

If you are a politician faced with an electorate plodding through their everyday lives it's fairly obvious that promising them rewards they do not have to work for is more likely to gain their vote than telling them they shouldn't expect riches if they vote for you. This is one of the reasons socialists will always garner votes. They claim there is wealth for all if only they could be in charge and arrange things suitably. Every time they are elected they fail to deliver on that promise, and every time the next election comes around they promise the same thing while the alternative candidate does not. The promise itself is as enticing, yet as tantalising, as the rack of scratch cards on a shop counter. Faced with a choice between the idealist claiming he can make you rich and the realist saying he won't, it is hardly surprising that people vote for the former.

That they have been let down and made worse-off by the idealist every time he has gained power is neither here nor there. At least he claims to offer the chance of a lottery win. Offering bad news or "sorry chaps, it's going to be more of the same" might be factually accurate and unimpeachably honest but it is not enticing to those who see no way out of their current rut other than a fairy godmother.

The current state of the UK economy is a matter of fact. No fairy godmother will come along to change things. The recession has reduced GDP by around 6.2%. A degree of reduction was inevitable regardless of international recessionary pressures because some business was dependent on continued additional borrowing by individuals and that cannot go on for ever. Some of that borrowing was for things that were consumed immediately and had no tangible long term benefit, such as holidays. Some was for the purchase of goods to replace worn out items, perhaps furniture or a washing machine that pumped more water on the floor than through the drainpipe. Some was for the purchase of goods previously not enjoyed by the buyers, perhaps a dishwasher or a garden shredder. Some was for up-grading of items where what was already owned was perfectly serviceable but not the latest thing, such as flat tellies and fridges with two doors.

Two factors apply to limit the continuation of that trend. First, incomes dictate how much can be borrowed and once you have borrowed you have to pay interest, thereby reducing your disposable income and limiting your capacity for further borrowing. Secondly, once you have acquired a new thing, whether as a replacement, a new product or an upgrade, it will be some time before you have to spend on the same type of item again. Even in a country of 25 million households the time will come when the numbers up-grading their tellies starts to fall. Changing from a fat telly to a flat telly is a different kettle of ball park than changing from one flat telly to another.

There is probably a clever person somewhere who has calculated the overall level of person debt at which further borrowing will not be feasible, but their work has evaded my attention. The precise figure (if there is one) really doesn't matter. All that matters is that funding a certain percentage of national business on credit must have a limit. There is a limit for individuals, which is why Mr & Mrs Ordinary borrow £1,000 on a credit card to buy a flat telly plus surround-sound home cinema system and then don't borrow again until they have paid back that sum. A sudden rush of increased borrowing will boost the business of the vendors and manufacturers, but only for so long as people can afford to borrow more. One day it will slow down but the shops and distributors and manufacturers will have staffing levels to cope with the previous massive demand. A reduction in demand will mean job losses.

We now know that people borrowed more than they should because their actions tell us. They are paying-off personal debt faster than at any time in history. The reduction in demand for unnecessary replacements and up-grades is an inevitable consequence of the previous demand being a temporary and unsustainable bubble. That aspect of reduced GDP would have happened at some time regardless of other factors. Careful governments regulate the amount of consumer credit because they know that only a certain level can be sustained. But you can't easily win votes by saying "we are going to make it more difficult for you to borrow the money to buy a fridge with two doors in place of your boring old one". Perhaps it would not be a vote loser if the politicians had the courage to explain that the bursting of demand bubbles does far more damage than the benefits those bubbles delivered during their short life.

What I find utterly baffling is the apparent inability of people to equate their own financial situation with that of the government. (I infer this apparent inability from the indication from opinion polls that some people are still prepared to vote Labour) All around the country there are homes with Ma and/or Pa saying "sorry offspring, it's Margate not Marbella this year" and "no we can't get new car, we don't have the money because we are still paying for the telly and the duck-egg blue leather sofa". When money was, or appeared to be, available it was spent. Now that it is not available it is not being spent and it's beans on toast at home rather than chicken-in-a-basket at the Dog and Duck. Government spending includes countless sums on fripperies that appeared affordable during the bubble years. They weren't affordable before, so why are they still seen to be affordable now that the money has run out? It's sheer madness. But there are no votes in saying "we are going to get rid of half a million unnecessary people from the public sector payroll". Perhaps it would be a vote-winner if politicians had the guts to say that continuing to employ the pointless half million drains money that could otherwise be used to pay-down personal debt sooner or to allow a business burdened with taxes and the red tape of excessive regulation to stay afloat.

The truth is that there is only so much money and there is only so much wealth. Creating more money but no new wealth benefits no one. Only creating wealth allows an economy to expand and people to enjoy sustainable higher levels of material comfort. Creating wealth is a slow process once a certain level of wealth has been achieved. China, India, Brazil and others are creating new wealth at a fast rate because they are still far below the level we currently enjoy, indeed below the level we enjoyed twenty and more years ago. Once a particular level is reached it becomes difficult to create more. Perhaps two percent a year can be achieved, maybe even three, but two percent of a lot is a lot whereas ten percent of little is less and far more easy to achieve.

It's terribly dull to say "we are actually pretty comfortable in this country, so don't expect a lot more comfort any time soon". Yet that message is essential if there is to be any hope of realism entering governmental economic management. Our current government is clinging like a barnacle to the bubble of apparent but unsustainable wealth created by them allowing personal credit to get out of hand. Much of current government spending was only undertaken in the first place because of the tax revenues arising from the credit bubble. That revenue is no longer there, yet they insist on maintaining their spending as though it were. They don't have the courage to say "sorry chaps, I know it's rather dreary, but we can't afford it any more".

I long for dreary. I long for a government that sets its spending according to its income rather than vice versa. I long for a government with the guts to say "don't expect a lottery win, it ain't going to happen". It's not an easy sell, the desperate and irrational will never buy it, but I think most of the rest would if only someone grew some balls and tried it.


Anonymous said...

Yes i agree boring is hard to sell, hence the lack of visitors to your blog.

Pogo said...

What's the matter "Anon"? Finding the big words a bit troublesome?

Anonymous said...

Oops sorry to ruffle feathers, couldnt resist it with a post with that title,apologies to bigot and pogo and fair play to you.

Pogo said...
This comment has been removed by the author.
Pogo said...

@Anon... (Python)"Spoken laike a true gent!(/Python) :-)