I'm explaining it in case you are one of the 94%. If you're not, apologies.
In the face of such ignorance, it's hard to see how we're going to come to terms with the economic problems facing the country. Which are legion.
I was reflecting on this after reading the latest of Dr Tim Morgan's magisterial series of reports into the state of the British economy. Dr Morgan is Head of Global Research at brokers Tullett Prebon, and over the last year or so he has published three or four of these blockbusters. They are easy to find on the net. Just Google Dr Tim Morgan Armageddon. Yes that's right. Armageddon.
Broadly speaking Dr Morgan's thesis is that most of the growth we enjoyed during the Brown boom was due to borrowing. If you assume that this borrowing - government, consumer, housing-related - is at or near its peak, there is little likelihoood of a similar stimulus to the economy in future. So no wonder the economy is not growing. It's not going to. This is sobering, but for most people outside the Keynesian-lite cadre of Ed Balls and his fellow-travellers, not terribly surprising.
How did we get into this situation? Now Dr Morgan has released a new report, entitled "Perfect storm: energy, finance and the end of growth", which addresses the issue.
"Fundamentally, what had happened here was that skilled, well-paid jobs had been exported, consumption had increased, and ever-greater quantities of debt had been used to fill the gap. This was, by any definition, unsustainable . . . anyone who believed that a globalisation model (in which the West unloaded production but expected to consume as much, or even more, than ever) was sustainable was surely guilty of wilful blindness. Such a state of affairs was only ever viable on the insane assumption that debt could go on increasing indefinitely . . . the process of globalisation has distorted the normal relationships between production, consumption and debt beyond the point of sustainability. The West is in deep (and perhaps irreversible) trouble because it has consumed more, just as it has produced less."
I'm aware of course that I enjoy reading Dr Morgan's work partly because I like a frisson of horror every now and again; but also partly because I agree with most of his conclusions. There's nothing like a bit of external self-validation.
"The real causes of the economic crash are the cultural norms of a society that has come to believe that immediate material gratification, fuelled if necessary by debt, can ever be a sustainable way of life . . . " Amen to that.
And confirming my suspicion that all the financial services industry did was enable us to keep on borrowing, "There has been widespread public vilification of bankers, the vast majority of whom were . . . only acting within the parameters of the ‘debtfuelled, immediate gratification’ ethos established across Western societies as a whole . . . Bankers, trying to establish an even larger borrowing market . . . created the ultimately disastrous phenomenon known as subprime, in which mortgage funds were advanced to borrowers who were not remotely capable of keeping up
repayments".
Dr. Morgan is right about almost everything. No, really.
"Alongside wasteful investment allocation and disastrous labour market policies, the West has allowed the rise of two extremely damaging cultural norms. The first of these is the unchecked rise of consumerism, fostered by an advertising industry which spends close to $470bn annually (and about $143bn in the United States alone)."
"The second is a sense of entitlement, both at the individual and at the national level. Welfare systems, originally intended as safety nets, have been allowed to price Western workers out of international markets. Benefits systems, even if they are not (as is often claimed) “lifestyle choices” for the recipients of benefits, certainly have been exactly that for the armies of administrators that flourish in almost all such systems. The rise of welfarism has imposed huge social costs and taxes on businesses, placing them at an ever greater competitive disadvantage which has been exacerbated by well-meaning labour legislation in which considerations of profitability and efficiency are also-rans when measured against supposedly ‘progressive’ social objectives. Worst of all, Western countries and their citizens have behaved as though their affluent lifestyles are some kind of divine entitlement rather than the reward of productiveness."
But admirers of Dr. Morgan will find new shocks in his paper. The first is that he thinks that the markets will "in the very near future" realise that central banks can never reverse their massive Quantative Easing. "If – or rather, when – the credibility of eventual reversal is lost, a dire chapter of recklessness is likely to end in money-printing, hyperinflation and collapse."
But there's worse. The long period of economic growth across western economies has coincided with and depended on the availability of cheap energy. But energy is now going to get even more expensive, partly because of rising living standards and rising demand in India and China, and partly because of the increased cost of extracting oil from the ground.
Put simply, the more it costs to extract energy the greater the percentage of a country's national income which has to be devoted to pay for that extraction. Initial oil deposits - the low hanging fruit if you like - were cheap and easy to extract. Now it's getting much much more expensive, and paying for that extraction will cripple economies, particularly those that don't have big reserves themselves.
Our way of life will be over, within a decade!
If I believed everything Dr. Morgan wrote I'd be stocking up on rice and pasta. I don't, or at least, not completely. For one, he seems to be enjoying his doomsaying slightly too much. And we shouldn't assume that because his analysis of how we got to where we are looks unnervingly accurate his prognostications will come true. After all, twenty years ago, when Britain was emerging from Black Wednesday and the longest period of economic growth in our history was just beginning, you could have stuck a hundred clever and well informed economists in a room and not one of them would have come up with the current scenario. The chances of Dr. Morgan being right in every particular are very small. Harold Macmillan's "events, dear boy" have a way of making idiots of us all.
Secondly, I think Dr. Morgan underplays the ability of technology to transform the way energy is consumed and supplied. Oil won't run out - it'll just become too expensive and we'll have to use something else. The something else could itself provide an opportunity for growth (the question of whether growth is of itself a good thing is for another day. Or days).
Lastly, although humans are very bad at preparing for change they are very good at adapting to it when it arrives. The world will look different, but we will probably cope with it.
The 94% who didn't know the difference between the debt and the deficit worry me much more than Dr. Morgan. Because it's in the dawning realisation for them that there may be no return to the old days of reckless plenty, and in the painful adjustment which must follow, that the true danger to civility lies.
But there's worse. The long period of economic growth across western economies has coincided with and depended on the availability of cheap energy. But energy is now going to get even more expensive, partly because of rising living standards and rising demand in India and China, and partly because of the increased cost of extracting oil from the ground.
Put simply, the more it costs to extract energy the greater the percentage of a country's national income which has to be devoted to pay for that extraction. Initial oil deposits - the low hanging fruit if you like - were cheap and easy to extract. Now it's getting much much more expensive, and paying for that extraction will cripple economies, particularly those that don't have big reserves themselves.
Our way of life will be over, within a decade!
If I believed everything Dr. Morgan wrote I'd be stocking up on rice and pasta. I don't, or at least, not completely. For one, he seems to be enjoying his doomsaying slightly too much. And we shouldn't assume that because his analysis of how we got to where we are looks unnervingly accurate his prognostications will come true. After all, twenty years ago, when Britain was emerging from Black Wednesday and the longest period of economic growth in our history was just beginning, you could have stuck a hundred clever and well informed economists in a room and not one of them would have come up with the current scenario. The chances of Dr. Morgan being right in every particular are very small. Harold Macmillan's "events, dear boy" have a way of making idiots of us all.
Secondly, I think Dr. Morgan underplays the ability of technology to transform the way energy is consumed and supplied. Oil won't run out - it'll just become too expensive and we'll have to use something else. The something else could itself provide an opportunity for growth (the question of whether growth is of itself a good thing is for another day. Or days).
Lastly, although humans are very bad at preparing for change they are very good at adapting to it when it arrives. The world will look different, but we will probably cope with it.
The 94% who didn't know the difference between the debt and the deficit worry me much more than Dr. Morgan. Because it's in the dawning realisation for them that there may be no return to the old days of reckless plenty, and in the painful adjustment which must follow, that the true danger to civility lies.
