The global economic problem

[elmarko]

I'm curious to find out what a majority of people believe to be the underline cause of the global meltdown.

My thoughts on the matter,

1. Basing our economy's off a debt model is always going to drive inflation (due to the requirement of interest), which destabilises the markets - the only long term winners are banks (who in part acquire wealth through the devaluation of everything else in a sense).

2. Lack of appreciation for systemic risk - how so many organisations can fail to plan for the collapse of the system is beyond me, any half decent risk strategist should have taken that into account (or if they did bring it up, not be ignored - as some had been).

3. Reduced spending power of the public - this one is more pervasive, as the short term gain ideology of public limited companies has effectively driven down average wages.

This in turn has had a detrimental effect on demand, effectively damaging the spending power of a majority of the population.

As the spending power stagnates as do new business start-ups, existing firms cut back on staff to meet the reduction in demand - the problem is this has a double knock on effect, firstly as people are displaced from work - each company loses another potential customer.

As the percentage of "low earners" increases, the potential total of customers decreases - with an added insult to injury the state then has to either subsidise the wages of the lowest earners (via tax credits) or pay for the substance of people unable to find work.

Decreasing the income gap, would not only yield increases custom for the rich - but increase the quality of life for the middle & lower classes.

I'd be interested to hear a logical argument against this theory (not mine, just the amalgamation of a multitude of papers from economists & venture capitalists) , as I don't think anybody could argue that having 80% of the population economically inactive is good for business.

Strengthening the middle class & working class allows the top earners to keep making money, as demand creates jobs - which in turn creates economic growth & wealth.

This isn't about people on benefits, I'm talking about workers - but the added bonus of this approach is the increase in jobs (due to higher demand) should get all those who want a job back into work - then we can talk about how do deal with the real lazy ones.

As I said, I'm interested to hear other economic arguments in favour or against a system aimed at increasing the spending power of the middle/lower classes.

 

[kae2]

Pancake.

 

[Van Hellseek]

Pancake.

 

[elmarko]

Pancake.

I assume you mean...

http://www.venturecompany.com/economics/index_files/pancake_economics.html - pancake economics

 

[shoes]

Poor people trying to live like rich people.

Rich people gambling like they have an infinite supply of money.

Goldman Sachs

 

[kwerk]

1. spending more than you take in, outside of war time.
2. thats it.

 

[scorza]

Interesting subject. I've also seen people saying that measuring GDP growth as an indicator of economic health in a developed economy is counter productive, and the arguments why are convincing. Unfortunately no-one has suggested a feasible alternative as yet.

 

[ntg]

Too much to go through at once, just a couple of observations.

1. Basing our economy's off a debt model is always going to drive inflation (due to the requirement of interest), which destabilises the markets - the only long term winners are banks (who in part acquire wealth through the devaluation of everything else in a sense).

What about when your are borrowing at 0% or negative interest rate. How does borrowing excessively at 0% or negative IR drives up inflation?
Just wanted to point out that your understanding of how inflation works is mistaken.

More debt does not mean more inflation.

2. Lack of appreciation for systemic risk - how so many organisations can fail to plan for the collapse of the system is beyond me, any half decent risk strategist should have taken that into account (or if they did bring it up, not be ignored - as some had been).

Which orgs are you referring to, and what kind of a 'collapse' should they have planned for? What exactly can you do when things really collapse?

Actually, it's a circular argument. You'll find that when things collapse it's because something unprecedented happened, things that people had not thought about. The "unknown unknowns" in a way.

Also, when everybody around you is taking big risks and making truckloads of money, what do you think will happen to the lonely guy in the room who suggests you stop taking risk and settle for a small part of the pie? That's right, you get ignored, if not sacked.

3. Reduced spending power of the public - this one is more pervasive, as the short term gain ideology of public limited companies has effectively driven down average wages.

Care to elaborate on this? I'm not sure I understand what you mean.

I'd be interested to hear a logical argument against this theory (not mine, just the amalgamation of a multitude of papers from economists & venture capitalists) , as I don't think anybody could argue that having 80% of the population economically inactive is good for business.

I don't see any theory, just some assumptions about what is happening. I'm not sure where your 80% statistic comes from.

Also, what are the soures of the economists and venture capitalists that you are referring to? Or is it just Krugman that you refer to?

I think you'll find that what you are describing is a natural course of events. There is little to do to engineer a turnaround. Sometimes textbook theories are good in principle but unworkable in practice, simply because you do not have one entity controlling the whole system. It's so dynamic that nothing guarantees that by doing X you will get Y as a result.

 

[elmarko]

Poor people trying to live like rich people.

Yes, via credit cards (a silly idea to pump up the credit economy to try to overcome the problem of reduced effective demand if you ask me).

Rich people gambling like they have an infinite supply of the taxpayers money.

Fixed

Goldman Sachs

They certainly helped it along.

 

[chilipeppersc]

people with money have access to money, more money saturated

interest rates (these alone are ludicrus)

1% of the money owned by 99% of the people, 99% of the money owned by 1% of the people....saturation.

Major industries not giving back to the people, not caring about people, not living for life but instead for money

Depriving others to feel self wealth, worth etc, selfishness

Resources being saturated also promotes saturation of wealth, access to money of wealthy individuals allows the expansion of already large businesses to the point of monopolisation, social control, media control, and inevitably money running countries, superpowers, and institutions such as fraudulent charities, creating wars for profit, blood for money

we are currently in an age where we accept our fate as nothing more than pawns, people who suggest they are of worth are dilusional, nothing is done to change the situation and nor do we stand up for our thaughts, our oppinions and attitudes, even if they are the same as others, even if other people are suffering as a result of us, the people, doing nothing to prevent such occurances.

Later retirement age, lower minimum wage, increased prices, increased armed force spending, increased poverty, saturation of money and resources, taking over your homes, your bank balance, your access to money and ability to influence the world. This is the world we live in, if you dont agree you are deluded, if you dont like it then do something about it. You may or may not risk your life over it, but most people wont, therefore nothing will change.

 

[edscdk]

there was a great program on TV recently about this (in the last week),

until Roman times it was common to have mass debt cancelling by the state and everyone just started again.

they talked about how we are no longer living on the "interest" produced by the planet but we are eating into the "capital", one example was years ago we relied on rain water for crops now millions of people rely on fossil water thats fast running out...

they talked about how in the past when one civilisation collapsed there were others that filled the gap and now due to globalisation there will be no one to fill in the gap...

then something about the big collapses were proceed by too much of the wealth going to too few people...

then I got too drunk and don't remember the rest... maybe it was actually rubbish and I was just drunk so it seemed good....

 

[elmarko]

Too much to go through at once, just a couple of observations.

What about when your are borrowing at 0% or negative interest rate. How does borrowing excessively at 0% or negative IR drives up inflation?
Just wanted to point out that your understanding of how inflation works is mistaken.

More debt does not mean more inflation.

How often are we lending at a 0% interest?, I'm didn't say the interest rate - I said interest (as part of the loan)

How often are is the interest on loans the same as the interest rate?.

Which orgs are you referring to, and what kind of a 'collapse' should they have planned for? What exactly can you do when things really collapse?

Actually, it's a circular argument. You'll find that when things collapse it's because something unprecedented happened, things that people had not thought about. The "unknown unknowns" in a way.

Also, when everybody around you is taking big risks and making truckloads of money, what do you think will happen to the lonely guy in the room who suggests you stop taking risk and settle for a small part of the pie? That's right, you get ignored, if not sacked.

You can plan for unknown unknowns, by planning for the entire system going under - that's what systemic risk includes.

Care to elaborate on this? I'm not sure I understand what you mean.

Pressure from shareholders to increase profits has resulted in lower wages for staff - resulting in reduced custom.

I don't see any theory, just some assumptions about what is happening. I'm not sure where your 80% statistic comes from.

80% is an approximation - based off the 80/20 rule & the fact that most of the population earn less than 30k PA (75% apr) (a wage in which a reasonable amount of disposable income is left after living costs & reasonable economic activity).

Also, what are the soures of the economists and venture capitalists that you are referring to? Or is it just Krugman that you refer to?

http://en.wikipedia.org/wiki/Nick_Hanauer for one, an array of speakers at the RSA (I'll dig out the names) - I'm unfamiliar with Krugman.

But are you disputing that the spending power of the middle/working class has been diminished over the last 50 years? - which can only result in a reduction in demand for goods & services,

As the increase in the poverty gap (which I can provide evidence for both, or you could save me the time & find yourself if required) would indicate otherwise.

I think you'll find that what you are describing is a natural course of events. There is little to do to engineer a turnaround. Sometimes textbook theories are good in principle but unworkable in practice, simply because you do not have one entity controlling the whole system. It's so dynamic that nothing guarantees that by doing X you will get Y as a result.

Yes, it's a natural course of events - if left to it's own devices.

That's why business needs to be saved from it'self, the short term individual profit will end up destroying the purchasing power of the public.

The problem is, businesses & individuals view the economy on a micro scale, thinking that individuals have a duty to ensure that they personally achieve wealth.

This is true, individuals will plan ahead for themselves, but not for the wider economy - which they rely on.

If we made it possible to avoid paying all tax, would companies still pay tax? - knowing that if none was collected the entire system would collapse?.

Government intervention is required in this situations, when a wider view of the economy is required to maintain it's sustainability.

What global economic problem?

While you personally may be OK, it's not the case around the globe.

Sovereign debt crisis's, bank bailouts, future of the euro looking shaky, severe cuts planned to public services around the developed world, ever increasing poverty gap, virtually no economic growth in most parts of the west (or negative), no solution to our impending pension pyramid scheme disaster (that ones going to be fun in 40-ish years).

 

[Dave M]

What global economic problem?

 

[Unicorn]

What global economic problem?

I wondered the same? We seem to be doing Okay at the moment.

 

[malachi]

Greed

 

[grumpysculler]

Pancake.

I disagree. The problem is waffles - insufficient supply and, most critically, woefully inadequate amounts of maple syrup served with them.

 

[cwhitehead]

Im doing OK i have no debt etc. But it could still be classed as tight if something was to go wrong with a car for example.

I still say the one thing that has a chance to save a lot of business would be a simple drop in fuel tax/duties.

It's the one thing which increases the cost of everything we buy, which if they wanted could be changed very easily.

 

[elmarko]

Im doing OK i have no debt etc. But it could still be classed as tight if something was to go wrong with a car for example.

I still say the one thing that has a chance to save a lot of business would be a simple drop in fuel tax/duties.

It's the one thing which increases the cost of everything we buy, which if they wanted could be changed very easily.

True, it's also regressive as it hurts low income earners (who have to drive to get to work) the hardest.

 

[Nerusy]

I'm curious to find out what a majority of people believe to be the underline cause of the global meltdown.

Currently it is the paralyzing fear of uncertainty.

Smart money is putting their money (or like some people prefer to name it "Gamble" their money) into the safest possible assets.
Thus money is not redistributed from saviors to spenders, thus economy is stalling.
We're at a standstill waiting for something to happen to definitively tell us where we are headed.

 

[starfighter]

It's the Governments that are in debt.

Pretty much all Western economies are messed up. China and other emerging economies are fine. We import too much from poor countries and don't export enough back.This trade deficit has been going on for too long. The banks melting down was only the tip of the iceberg and not a that bigger deal really compared to this.