Retirement, the future and The Economist

The editors and writers of The Economist news magazine must be ageing and not seeing things too clearly.  That is my conclusion after reading their recent special report on the future of elderly people.  Another option is that my view of the future is incorrect.  The Economist is much more optimistic than I am, I hope they are correct.

I disagree with them on three issues – the future of the economy, the work ethic and financial issues.

Most of their readers probably have a vested interest in continued economic growth and to prosper the magazine needs to support this. And they do.

This blogger figures the current economic problems are related to energy and mineral resources.  We have used up the most accessible of these and those which are left take so much energy to extract they are worthless.  If this is correct the outlook for the future is rather grim.  We can anticipate a lot of human suffering as we have to adapt to a down economy.  So far retirees have largely been exempt from this but our time may be coming. Trump, Brexit, Saunders, Corbyn and Macron could all be symptoms of this problem.  Lots of people recognize something is not right but do not know what it is.

In recent years The Economist has come up with a number of cute cures for the economic crisis.  This time we are going to save ourselves by getting people to work further into old age.  This commitment to the work ethic may be good for those whose fortunes and status depend upon getting other people to work for them but if the above analysis is correct increasing economic activity will use up more energy and resources and bring forward the timing of a complete economic collapse.  Rather than promoting the work ethic we need to be pushing a leisure ethic  in which people get their self identity from doing non economic things such as music, theatre, art or writing a weblog on economics. The Economist talks about a longevity dividend.  Should this dividend be more work or more leisure?

One of the features of money is that it gives a person control over resources.  Financial obligations left over from the era of prosperity mean some older people have a greater  command over current resources than the young.  Older people are going on luxury cruises in which a waiter from a third world country puts the pepper on their food while their grandchildren are struggling to find jobs and homes.  When the crisis hits pensions and other savings the cruise ship operators will be lobbying for the release from prison of a famous Italian captain so they can put him back to work.

This blogger tends to be pessimistic about the economic future.  I figure I was very lucky in the time and place in which I was born and have lived most of my life (1941 and western Canada).

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.

TheEuro crisis and economic growth

If or when the dust finally settles on the economic crisis the world will probably look like quite a different place.  Yet all the proposed policies are designed to try to restore a golden age of prosperity which will probably never return.

The challenge should be to control our destiny so as to have a society in which everyone has a comfortable life but one that is not based on so many material things.

The probable root cause of this crisis, Europe and worldwide, is that we have used up a lot of resources, or at least those resources which were easily accessible.

The shortage of resources is bound to have an effect on our economy and one likely result is that most if not all the world will become a series of third-world economies with most people living at a subsistence level.

The most formidable obstacle to resolving the crisis is our commitment to the religion of economic growth.

Economic growth is no longer an option and efforts to revive it are doomed to failure.  Our best hope for the future is to put our energies into finding an economic model in which our well-being does not depend upon growth.

Ridiculous explanations for the economic crisis

This post was prompted by the Buttonwood columnist in The Economist.

Sometimes it seems that some economists come up with ridiculous theories to explain the economic crisis.  These theories divert our attention from basic issues and allow some people, including columnists, to ignore the obvious and maintain their faith that the world will soon return to its golden age of prosperity.

When I studied economics the professors would draw on the blackboard an x shaped graph.  Sometimes the lines would be labelled to represent the financial side of the economy and the physical side of the economy .  This is an important distinction but it is forgotten as soon as we leave the blackboard.  This could be because it is easier to measure the physical side of the economy in financial terms.

Both sides of this graph have the potential to cause economic chaos.

On the financial side the way in which money is created is so complex and convoluted that even bankers won’t believe it.  Not only is it complex but interest is charged on the money created making it into a sort of Ponzi  scheme

On the physical side we have been using resources at such a rate that those which are left require a lot of energy to extract.  It’s hardly surprising that “of 34 advanced economies, 28 had lower GDP per head in 2011 than they did in 2007. ”

To deal. with the economic crisis, rather than thinking up theories which blame it on some scapegoats, we need to look at the basics and do some sour searching regarding our own lifestyles.

Crises, referendums and impossible questions

Leaders don’t always speak for the people they claim to represent.  Therefore the Greek referendum may be a good idea.

The question is can the financial crisis which is threatening a number of countries around the world be resolved.  One doesn’t want to be defeatist but if we really are using resources at 150 per cent of the sustainable rate, then there is bound to be some serious economic problems.  Is it realistic to think we can beat the odds?

If we can’t beat the odds, should we then be looking at an orderly wind down in the hope we can minimize the human suffering?

Some times there are no answers.

The blackboard and the economic crisis

This week’s edition of The Economist has a series of articles focusing on the European financial crisis.

If we want to understand what is happening in Europe and the rest of the world I suggest we need to start by going back to the blackboard.

When my economics professors stood in front of the blackboard most of them drew a graph with two lines in the form of an x.  The macroeconomic professors usually labelled  one as representing the economy in financial terms and the other as representing the economy in  real or physical terms.  This is an important distinction which tends to be forgotten when we analyze problems away from the blackboard.  It is to easier to look at an economy in terms of its currency.

It is important to note that these two lines intersect so that what happens on one side will influence what happens on the other side.

So we need to ask if the current European crisis and if the crisis in the rest of the world is really a financial crisis or is it a crisis  on the physical side, in the resource base, which is showing up in financial terms.

There are some people who believe we are using  up resources at a rate which is  beyond sustainability.  If this is the case it is no wonder the people of this planet are dealing with a multitude of economic problems.

The Economist is pushing for policies which its  writers believe will restore growth.  It may be that instead we need to look for policies to manage negative growth.  The problem with policies to create more growth is that they will probably lead to even more using up of resources and will thus bring forward an even worse economic crash.

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