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Tag: national debt

Tighten your seat belts. Good overview of next installment of the financial crisis

I am optimistic but

attend to the facts

I think we live in oddly optimistic times, but only if we attend to the facts.  Financial facts can be hard to come by and its very difficult to find the whole picture laid out in one place.

The Huff has a summary of the financial crisis in April 2010

  • our total national debt as you and I understand it – what we owe not just what the government owes
  • how much is underpinned by China
  • what China wants done and what IMF is doing RIGHT NOW

The Huff’s general message is tighten your seat belts.  The critical ideas seem to be

  • Debt repayments due in April 2010
  • Chinese/IMF proposal to introduce SDR’s – in short an international reserve currency which allows countries with surpluses to hedge their bets across countries looking for bailouts (us)
  • Where (and to whom) our money has gone (we really should get back what is left)
  • A crisis due in the next month or so (hang on to your seats)
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We can afford what we create

The golden rule of economics and politics

It is all that we need to know really.  We can afford what we create.

Our plan of work tells us what we can afford

And from the golden rule ~ we can afford what we create ~ we have two other rules.

It is better to work with others than alone

None of us can create everything we want, or need, to afford.  It matters that we belong to a bigger group or tribe.

The collective to which we belong tells us what we can afford.  Our family, our company, and yes, the country, the sovereign state to which we belong, define what we create and our lifestyle.

When I am writing, someone is creating the electricity that powers this laptop.  While another person is making my washing machine (running in the background), I am looking for easy-to-understand writing on our economy that cuts through the obfuscation delivered by politicians.

The system matters.  Our place in it also matters.  But the whole,  the collective, is what we must keep our eye on.  Where we draw the boundary matters.  Because we can afford what we can create. Who is weBetween us, we create what we can afford.

Draw a circle around who we trust, and who lives and breathes because we live and breathe, and we have defined what we create and what we can afford.

If that circle is too small to define the lifestyle we want,  there is our first task.  Widen the circle. Widen the  magic circle of trust.

We need leaders who instinctively read that circle and work with our neighbors, suppliers and customers to widen our system.

Tell me what you are going to do.  Economics will follow.

The second rule that follows the golden rule is that value comes first.  We can check the economics afterward.

The clear writing economist, Ann Pettifor, makes this point well.

The central bank in each country should set the money supply to match the economic capacity of a country.

She doesn’t like using a household or small company as an example.  So let’s use a giant multinational.

When a giant company needs something done, and they are pretty certain it will work out, they put up the budget and let the managers and workers get on with it.  Money comes first in time.  But profits, and worrying about profits comes last.  Paying back the investors comes last.  We will recover our money provided we only put up the amount of money that the work was worth.

But we will never make money unless we have the money to bring a team together and get going.

The skill in managing, and financing, a major investment is understanding what venture is worth.

Before you tell me that business does not work like that.  It does.  Don’t confuse where you work with successful companies and successful public service.  I’ve consulted to them.  I’ve led in them.

I have two rules:

  • What do you want to do?
  • After you’ve told me, we’ll run the numbers to make sure it is economically viable.  If not, we go back to question 1.  What do you want to do? We begin with the value.  We begin with what you want to create.  Economics follows.  If you want to do it, we will back it.

We can afford what we can create

These are our questions.

What can we create?

Who do we create it with?

What is our potential that we are not using?

To find our potential: ask people.  What do you want to do?  When that is on the table, we’ll run the numbers.  If the numbers hold together, we back their plans.

The golden rule and Britain’s government deficit

Ann Pettifor puts this story in the context of Britain’s government deficit(which is large but not nearly as big as the bank bailouts).  She is standing for parliament but don’t let that dissuade you.  She writes clearly.  That alone is a good reason for electing her.

The collective, Britain, defined by the reach of the Bank of England and the reach of the pound sterling, has potential.   Fund it.  A simple message.  Fund what we can create.

The only question that I ask, and I’ll go to her blog now to ask the question, is how quickly will we recover the money?  I think I would like to see the numbers run by month, quarter and year.  Then I would feel more comfortable.

Then my trust would increase  Then the collective strengthens.

Sometimes economists (and lawyers and accountants) forget that everything they do depends upon us believing it.  Yes, the outer boundary is the reach of the pound sterling.   The real boundary is our belief in each other.  Some people call this belief ‘confidence’ but that is the wrong measure.

Confidence  is self-efficacy.  The correct measures is collective self-efficacy.  The question for that is “Do I believe that you will do better economically this year?” When we answer yes to that question, then we will boom.

But first the question of timing.  I must ask Ann that.

For now I am thankful for finding that quotation.  Simple.  Pithy.  We can afford what we create.

Followed by my two rules.

  • People matter.  Who is we.
  • We’ll check the economics after we have decided what we want to do.

P.S.  I googled “we can afford what we create” and I didn’t find any other reference to it.  Did Ann coin this phrase or is it a well known economic expression?

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Are we done ‘bargaining’ about the financial crisis? I wish, but I don’t think so.

Denial, anger, bargaining, depression, action & the financial crisis

This time last year we were definitely in the first of the five stages of grief.  Denial: we couldn’t quite believe that the bankers had blown a hole below our a waterline.

A year later, economists at least, have moved on.

The Governor of the Bank of England said

The sheer scale of support to the banking sector is breathtaking. In the UK, in the form of direct or guaranteed loans and equity investment, it is not far short of a trillion (that is, one thousand billion) pounds, close to two-thirds of the annual output of the entire economy.

To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.” (Governor of the Bank of England, in a speech, 20 October, 2009. )

Yes.  One trillion pounds sterling, 66% of the UK’s annual GDP of 1,4 trillion pounds has been put aside to mend the hole, lest it sinks the entire ship of state.

I don’t think the man and woman in the street quite grasps the size of the hole.  If they did, they would have stormed thelife-boats.

Professional economist are beginning to look at alternatives

The economists are beginning to debate seriously though.

Do we cut back hard to pay down our national debt – for which you and I must read – government debt?  Should the government stop spending like we might when we’ve just had an overseas holiday and put too much on the credit card?  Cut out all the luxuries till we have paid off our excesses?

Or do we need Keynesian economics to get out of this?  That is, should we spend money from the center to create a ripple effect?  For example, should the government spends 100 pounds on a new school, who pays the builder who pays the suppliers and who pays their suppliers who pay the supermarkets and who ultimately pays me.  All of us take part and we all pay tax and don’t claim benefits?

Ann Pettifor’s talk on Keynesian economics is 20 pages long.  If you are not an economist, put aside a couple of hours to get through it. It is worth the time.  First, it is clearly written.  You will understand the issues. Second, it is well written. It is nice to know that someone in England can still write a great speech (though she appears to live and work out of the States now).

Where are economists on the grief cycle?

So the economists are beginning to look at the facts.  What stage of grief are they in?  We need to know this so that we have a sense of how long the dilly-dallying will go on.

  • None are really proposing action.  The actions of others, yes, but not their own.  But they are along the track.  I would say the independent economists are around the bargaining stage – if we do this, it will be alright!
  • The Governor of the Bank of England, though admirably witty, seems to be further along around the depression stage. I do hate writing that.  It feels like tempting fate.  It’s relevance is this. It’s important to have a sense of when we will move collectively out of the state of shock and deliberation.  And it is important for younger psychologists reading this to store away a sense of how long community’s take to recover psychologically from extreme shocks so they are better able to lead when shocks happen in the future as they surely will.

We are gathering ourselves for action

We are still waiting for the leaders whose plans are not contingent.  We are still waiting for the leaders who say this is what I am going to do. This is what I am wholly committed to doing ~ so much so that I don’t have to say I am committed.  You see it in my eyes. You see it in my focused attention.  You see it in my invitation to join me.

We have a way to go.

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Found on a British train! The lost art of slick administration

I learned from the masters of administration!

I went to a university where we moved through a degree programme in lock-step.  In year one, we took 2.5 subjects, 2 compulsory papers from each of the first 2, and one paper from the third.  In year two, we took 4 papers from one of the first two subjects and 1 from the second.  And the same in year three, but a different set.

The sum of variation allowed was changing the order around 5:0 and 3:2, or if you were really smart, taking a 6th paper.

The university waited for no one

Not even babies!  The university took a simple view that examinations were taken once and once only and deferred only for matters totally outside our control.  Sporting matches, babies that after all arrive on quite a predictable schedule, family celebrations – were all deemed matters under our control.

Even being detained without trial by various rogue governments wasn’t deemed a reason to vary the schedule!  The university made a slight concession and brought you exam to your in jail!

Good administration leads to assured output & a productive life

The net effect of this policy is that the university opened and shut on time. People began degrees and finished them. The simplicity of the administration in that university was just stunning.

All requests had to be made before the event. Nothing was considered retrospectively. All decisions were made on facts marshalled on one piece of paper.  Decisions were made against clear criteria that were public and you knew what you could request from whom and on what grounds. All decisions were reviewed at the next level up where they were considered against new criteria.

A lecturer (professor) graded your paper and the lecturer’s colleagues approved the mark. Those marks were put together and an inter-Department committee approved your GPA/class of degree. An inter-Faculty committee checked that the Faculty committees weren’t being too lenient or too hard.  An eminently logical, rational, fair and transparent environment.

Lock-step systems can be inefficient when misunderstood

Lock-step systems don’t always produce efficiency or fairness, though.   I came out of that system quite well, and I am not unhappy that I studied psychology, sociology and anthropology. But I had actually wanted to study psychology, economics and mathematics – which I was very good at.

Novices need guidance not on the system but how the system will serve their goals

To achieve that combination, someone with knowledge of the system needed to sit my 17 year old self down and ask me what I wanted to do.

The answer would have been for me to enrol in the Arts Faculty for a B.A , to read psychology (2 papers) & economics (2 papers) in the Faculty of Social Studies, and Mathematics (2 papers) in the Faculty of Science!

Apart from being too complicated for a noobe to find, that solution would have made me a little insecure because a BA (General) has a lot less status than a B.Sc. (Hons) and I wouldn’t have read Sociology (upsetting my father).  I would have studied though what I wanted to study and created the choice of transferring in second year to a straight Honours in any of the three subjects, or continuing with a more general mix including picking up Sociology in second year.

Would I have been better off if I had taken this road? Who knows!  What I do know is that the system was more concerned with its lock-step, which was very efficient, than making sure I developed to my full potential.

Lock-step systems require highly qualified front-line staff who understand the values and goals as well as the plan

I quite like lock-step systems because they give people a clear model of what to do.  We need to ‘see ahead’ when we are a ‘noobe’.

But we can waste resources and time too easily when we don’t distinguish values from goals from plans.

  • We had three values in our case– broad first year, Honours (meaning specialize) in 2nd and 3rd year, and finish neatly in three years.
  • The plan is the lock-step system I described at the top of the post.
  • The goal was my goal – to study psychology, economics and mathematics.  That got lost.

To make sure that the (usually) naive client pursues their goal, we need good frontline staff who can find out what my goal is – or what the client’s goal is.  That is paramount.

  • We only use the model to communicate the values concretely. It shouldn’t be a strait-jacket.
  • Then we make a plan that fits our streamlined system, adheres to our values, and allows the client to pursue their goal directly in the comfort of our well run service.

Most systems in Britain are plan-led.  Lock-step supersedes common sense.

I see so much in Britain where the plan seems to override the goal.

We’ve borrowed 175 billion this year to keep going. That is 3000 pounds per man, woman and child. Not that much, hey?

I bet we could simplifiy our services to cost less and achieve heaps more by having

  • much simpler models (a lock-step model to convey the idea)

  • spending more time finding out the goals of individuals

  • and lastly creating an individual plan to navigate the system.

This wouldn’t put people out-of-work, it would just allow a lot more to be done at a fraction of the cost, allowing the country to make more money to pay the bills!

We the unhappy punters would feel better and get more done. We would spend less time on the phone talking to call centres and officials whose main job it does seem is to fill in meaningless bits of paper for meaningless procedures whose ultimate destination is a a database left on a train.

P.S. The people who thought up the systems at the well-run uni were Scots.  We have the expertise.  We just don’t seem to be using it.

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Surprise! US is not overborrowed. But does it have Growth Story?

If you have even the slightest interest in living in the manner to which you have become accustomed, can I recommend you find 5 hours to watch these three videos of 12 economists talking what is happening in the US financial system and its dealings with the rest of the world?

I am just a lowly psychologist so I try to boil down economics to actionable rules of thumbs that we can use.  When you are done, I’d be interested in your take of mine.

1.  Find your growth story . . . and stick to it!

Find an industry that you enjoy, find the bit that is growing, and grow with it, wherever it takes you.

2.  Help you kids find their growth story

Invest in the things they love to do and take them on holiday to parts of the world where growth is happening.

Think abut a good trip to Brazil, Russia, China or India once in three years, rather than a time-wasting, resource-frittering holiday every year.

And if they have any inclination for languages, help them by doing their homework with them.   It may help when you talk to you grand-children who might be living in another country!

And may be include Arabic on you list of possibles.  Bang on the door of the mosque in your neighbourhood and ask them to include your children in their after-school activities?

3.  Remember that money is losing value as much as houses are losing value

Unless you have a lot of it hanging around, this is a good news story for you. Investors will want to invest in your growth story.

Don’t be desperate for their money. You have something as rare as hens’ teeth.

Bring in investors who believe in your story as strongly as they believe in returns on their capital.

And then write a tight contract for them!  This is a borrower’s market, whatever the mass media tells you.

4.  Learn the numbers and ask your MP and business leaders hard questions

The more we show that we know the numbers, the quicker they will get down and dirty with them too.

Let them watch 5 hours of videos on economic more often than we do.  That’s their job, after all. Let’s get our money’s worth!

5.  Vote with your ballot and your feet for people and firms with growth stories

Question the panic about government borrowing.

It may be different here in the UK – I wish we had a forum like these 12 economists here.  Common sense tells us, though, that we will only get out of our mess with a plan – a plan for getting out and moving along with growth stories in Brazil Russia India and China.

We don’t have to eat and drink ourselves silly to keep up. But starving ourselves and living in sack cloth won’t make us any richer either.

Government borrowing is only a problem when don’t have a plan to make businesses better over the next 5, 10, 20 years.

We want a growth story!  Can we start a fashion?  What will happen if we ask everyone you meet, what is your growth story!

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