Monday, August 08, 2011

The Economy

With the current downturn in the markets all sorts are popping out of the woodwork to give their views as to what should be done; some have some qualification in what they're discussing some don't; so I thought "Hey I can do that too" :-)

In some cases the consensus is the same during a period of recession cuts must be made and any income generated should go to pay off any debt already accrued. This appears to be the current policy of our government; parts of the US government and various financial institutions. They're right, or at least they would be if we were dealing with a household. Except we're not we're dealing with a country which in effect is a business.

Consider instead that we treat the country as a theme park; and in terms of the tourist industry this isn't far off. Imagine if the advice given above was applied to this. Make cuts - well our rides have to be manned and maintained to a certain degree so remove some of the rides and attractions or open them only during peak periods. To generate more money an increase in the entry fee could be possible too. What would the result be?

Less rides, open less means less people wanting to visit; means less money; means more cuts and around it goes until the park shuts down. Not the sort of thing one wants to happen to a country.

Now don't get me wrong I'm all for ironing out inefficiencies, but that's not the same as running a pure cost/benefit analysis on individual 'attractions' - they have to taken as a whole. Those wandering clowns may not be generating any income by themselves, but they act as guides, keep queues entertained and as such they lubricate the process by which the other attractions make money.

From the news it seems our government is looking at things individually, cut this, cut that; without an examination of the knock-on effects this may have and the feedback loop they might end up in. So what might be a possible solution - Spend our way out of the recession.

It's a phrase those advocating cuts hate; and to an extent I agree as those doing the spending aren't us, yet are doing so with our money while apparently not having much of a clue what they're doing. I read one point rallying against building projects - 'If all it took to stimulate the economy was building then in theory we could just build then demolish then build again' missing the point entirely that it's the building's function rather than the building process that matters. Inject money into the economy and the markets will pick up, which in turn generates more money.

While I agree that the downturn in the markets could be deemed a normalisation I also think that it's a response to the massive cuts being made by governments - they're the biggest single spenders and if they're holding back everyone follows their lead. Who's going to invest in a company at a time when no-one is spending any money? Combine that with the banks being reluctant to loan money and everything starts to implode.

I'm not advocating a return to the easy loans that helped bring about the mess we're all in; that was insane - you don't loan money to people who have zero ability to pay it back, but as we seem to do so often we've all swung too far the other way and are clutching at our remaining cash with a miser's grip.

Something's got to give.