Promoting economic growth

This post is in reaction to two articles in this week’s Economist..

The first article shows how the insurance industry is using digitization to sell more insurance to those who need it the least.  The second article talks about digitization as a factor of economic growth.

Perhaps the real issue for the second article is how digitization can be used so the marketing people can con us into working our butts of so we can purchase more goods and service we don’t really need for the sake of economic growth.

What we really need is some way of evaluating things such as music, arts, crafts, exercise and meditation so they can be included in gross national product.  They could then  become the growth industries of the future.


Running at banks

Today’s issue of The Economist has an article fears of bank runs in Europe.

Runs on banks are such serious things that you cannot expect any banker to tell the truth when his bank is threatened.    A large enough run would also impact a country’s money supply and that has to be a concern for all of us.

If a bank is unable to refund its deposits it is probably because its loans have gone bad.  It could also be because the banker has made some bad bets such as  on interest rate movements.

There is so much debt around that most of it, especially that of governments, will never be repaid.  The best that can be done is to keep rolling it over.  There is a high probability that eventually a lot of people are going to lose their savings either from bankruptcy or inflation.

Deposit insurance schemes can protect against small problems – the banker who makes a bad bet on interest rates – but I’m not sure they can protect against the general widespread debt problem we now face.

According to the article one suggestion for Europe is greater financial integration.  This could delay the crisis but would probably bring everyone down at the same time.


Responsitibilty for the financial crisis

A news report suggests there will never be any criminal prosecutions from the financial crisis.

This is because we are all to blame.

We all want/have wanted the highest possible returns on our investments and pension funds and the people higher up the line have taken advantage of our own greed to line their own pockets.

I suspect that a lot of what happens in courts has more to do with revenge and scapegoats than it does with justice.

Greek exit loses

This report from the Huffington Post puts a figure onto my analysis of a Greek exit from the Euro. It suggests Greeks would lose at least half their income.

Don’t be surprised if that happens whether or not they leave the Euro because what really counts is what is happening in the physical or real side of the economy.

Conseqences of Greece leaving the Euro

It appears a Greek departure from the Euro would be a surprise to the Greeks but not to everyone else.  If it does happen what would be the impact on them and the rest of us?

As I believe economic problems should be analyzed in terms of the physical side of the economy lets start there and then look at financial concerns.

Following an exit from the Euro the Greek standard of living would depend upon the quantity of goods and services the Greek people would be able to produce divided by the number of people.   This does not mean they would have to be self-sufficient as they would still be able to trade.

There could be a problem. If they were currently producing enough for their desired standard of living they probably would not now be in a crisis.

There are a number of factors which might reduce or improve their standard of living.

Some of the outside money they have been receiving was probably  used to import goods and services.  This would probably be lost although if things are really tough they might be given some aid.

If there were to be massive emigration (not a sure thing) things would be better.

The standard of living could be reduced by an obligation to repay some of the current debt to foreigners.  This would be because money repayments would be followed by goods and services.

They would also be adversely affected by what happens in other countries.  If things get worse elsewhere the number of tourists could drop which would reduce the foreign money they have for outside purchases.

On the financial side it appears there will be a massive write off of debt which means a lot of people will lose a lot of purchasing power.  A lot of people will be a lot less rich than they thought.  Both in and out of Greece this will fall upon individuals in the form of lost or devalued pensions or investments.

The writing off of debt will also mean a loss of money supply both in and out of Greece.  As there appears to be a lot of unused credit around this might not be too serious a problem

If Greece leaves the Euro its government will have to manage the replacement money and will have to be very careful not to create too much.  The consequences of too much money is inflation, maybe even hyperinflation.   Inflation is a loss of purchasing power just like the writing off of debt.  It can be a sneaky way for governments to steal from their people.

If I were a Greek politician I would want to write off all debt and start over with a national exchange trading system as outlined in my essay “LETS go to market”>

In working on this post I am very grateful I was born and raised in Western Canada.  However, I have to recognize our turns is probably coming soon.

Water and economics

It could be that one of the great injustices of the world is that for some of us the marginal cost of water is zero.

As this injustice is likely to get worse, the way for its victims to cope will be to apply supply and demand and marginal cost to pricing.  Here is an article about water markets.

When we were looking for a place to build our home we focused on a part of British Columbia through which there is a diagonal line.  One one side of this line it is dry sometimes getting close to desert.  On the other side is a cedar-hemlock forest.  Having previously lived in areas short of water I was determined we should be on the wet side.

As it turned out the  “pile of rocks” my wife refused to look at the first time we drove by has three streams on it.

The stream from which we take our water goes underground and flows into a river.  The water that goes through our house goes into a septic field and flows underground into the river.

Therefore the marginal cost of our water is zero and we don’t worry about water conservation.

I am not saying where we live because I don’t want a lot of other people coming to live in this valley.

The health and economics of smart meters

A flunky from a contractor to B.C. Hydro came by yesterday and installed a smart meter to monitor our electricity use.

A few minutes later my wife went to her quilting club at the local community hall.  On her return, as usual,  I asked about the gossip in our rural community. Of course the talk was about smart meters and the refusal of some people to allow the installation of these meters.  One lady missed the session so she could ensure the meter was not installed.

There appear to be two concerns – health from radiation and it may be a way for B.C. Hydro to grab more money.

Radiation may or may not be a problem but I know we surround ourselves with lots of devices that emit radiation and electro-magnetic fields. I have for some years been saying electricity is the root cause of cancer because cancer is a lifestyle disease and our lifestyle is based on electricity.

If people are concerned about high electricity rates they should tackle the  company on its bureaucracy and the salaries paid to employees.

In theory smart meters should reduce costs partly through not having to pay meter readers.  The big benefit should come from time-of-day pricing  By encouraging people to use power at off-peak times, the company should be able to reduce its need for more generating capacity. In British Columbia that means we may be able to avoid another hydro dam on a river.

People who refuse the smart meters could end up paying more for their electricity.  The company could charge them extra for meter reading and when time-of-day pricing is introduced they would certainly have to pay the top price for all their electricity.

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