The future for the British economy

The nature and impact of financial issues

The future for the British economy

Postby Nathan » 25 Jan 2013, 23:42

First of all, I have an interest in economic matters but am by no means an expert, so any correction of anything I say in this post is welcomed.

It was announced today that the British GDP has fallen again by 0.3% in Q4 of last year and is likely to officially go back into recession for the third time in five years when the Q1 2013 figures are released. My question is: is this stagnation ever going to end?

There is a startling graph in this BBC article showing that the GDP is actually 3% lower now than in 2008 when the recession began, most unlike the 1930s and 1980s recessions which by the fourth and fifth year had already begun a recovery. This is despite a rise in population, so while I haven't found any figures GDP per capita will have fallen even more sharply in the past five years.

Unlike any other periods in history of equivalent length despite a recent rise the FTSE-100 is still over 10% lower than at the end of 1999, nearly a decade and a half ago. According to the ONS figures as reported here inflation has outstripped wage growth since 2000. The Government's own forecasts are that they will still be running a budget deficit as far into the future as 2017/18 while the national debt has more than doubled since the financial crash began.

The average house price is five times the average national salary, which is less than the 2007 ratio of above six times average earnings but higher than it ever had been prior to the past ten years. Another concern to many wanting to get onto the housing ladder is student debt: the average student graduates now owing £26,000. In an economy based on consumption where both the government and the public are heavily in debt, where will the demand come from?

These gloomy statistics aren't even necessarily what worries me the most. The worry for me is structural unemployment and just how high the bar has been raised for applicants in any career fields with reasonable prospects. To take my personal field of translation as an example: a generation ago large companies still often employed translators in-house, and in many cases having a BA and a general knowledge of the language would have been sufficient. Now translation jobs are increasingly being outsourced to freelancers, which requires the would-be translator to be much more pro-active in setting his stall out and becoming proficient at marketing himself and familiar with the ins and outs of self-employment.

The industry as a whole has become more professional and faster-paced with the rise of the internet, so in most cases the would-be translator has to invest extra time and money in doing an MA and acquiring a specialisation in a specific topic as well as a knowledge of the ever-changing translation software. To top it all off, there is always the danger that computer translations will start to take more and more work from human translators (though they will never be able to take over completely) and in a global marketplace there is nothing to stop the eager translators based in low-wage countries from being able to undercut their British counterparts on pay.

For those who graduate without having carved a specific niche for themselves and who try their luck in the milkround of graduate training schemes, there are now 52 applicants for each graduate position - a number little changed for some years - and the application process can often involve a barrage of psychometric tests, multiple rounds of interviews both in individual and group settings and can last many months.

For those who are less academic but in times past would have been in their element in a practical, hands-on job in a shipyard or a steelworks or a coal mine those jobs largely no longer exist due to outsourcing or automation, and the choice is often between the supermarket and the call centre - jobs which the said person would likely be tempramentally highly unsuited to and by and large do not offer anything like the same sense of fulfilment and camaraderie. An ever-larger section of the population may simply become unemployable in the modern labour market, yet will still have to sustain themselves somehow and the consequences of welfare addiction are already widely available to see.

I'm well aware that we have no God-given right to enjoy more prosperous lives and better working conditions than those in most parts of the world by virtue of having been born in a western country just because our parents and grandparents enjoyed those same privileges, but that doesn't change the fact that for the bulk of the population in developed countries without an exceptional level of ability and/or aptitude and sheer luck working life is likely to become more precarious and living standards worldwide are set to continue to converge, which for us in the West would represent a decline. We only have to think of the 2011 London riots to see how the masses react to being deprived of their right to consume on the levels they have become accustomed to. At the same time, something which is very noticeable in London and no doubt other places which have chosen to reinvent themselves as financial centres, the global top 1% will continue to gain in prosperity and live increasingly distant lives from those around them. While differences in living standards between countries will shrink differences within them will continue to get bigger - something which history tells us tends not to end well, case in point being France 1789 and Russia 1917.

Is there anybody out there who can offer any light at the end of the tunnel?
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Re: The future for the British economy

Postby Jonathan » 27 Jan 2013, 11:32

I'm even less of an expert than you, Nathan, but I believe there are two additional factors which need to be mentioned: The large number of East European immigrants, and the equally large number of people who do not work, and live off benefits.
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Re: The future for the British economy

Postby Caleb » 19 Feb 2013, 06:44

Nathan: I don't think there is much light at the end of the tunnel for entire populations. The convergence of which you speak is largely unstoppable, especially for countries that have even remotely large populations (I'd put that number at maybe ten million, maybe less -- anything more than that and a country will have too many people to capture niche industries). This will be more pronounced especially in countries with diverse populations and with failing institutions (particularly education). Britain meets all of these criteria. I think it's going to be completely screwed. Socially, it's a complete and utter disaster and that will make economic matters worse, which will make social matters worse, and so on in a downward spiral.

Even seemingly successful countries such as Germany or Canada are living on borrowed time in this respect, Germany especially since the euro/EU will doom it. In its case if it stays, it will get dragged down time and again by weaker nations to the south. If it leaves (or they do), its currency will appreciate and make its exports highly uncompetitive. Catch-22. Countries such as Canada and Australia may get by on resources to an extent, but the ridiculously high cost of labour, as well as general issues with conducting business will mean those countries will continue to bleed jobs abroad.

As for the rich getting richer, the difference between now and then is the nature of wealth. Back in the day, rich people tended to have their wealth tied up in very illiquid assets (particularly land) in their home countries, so it was hard for them to escape with their wealth. There is pressure currently on so-called tax havens, but it's not really going to do anything. Switzerland or the Caymans may take hits, but that will only be to Singapore or Hong Kong's advantage. Currently around 6-8% of global assets under management are offshore. If you look at really wealthy individuals (more than 30 million USD, more than half of their money is offshore). Such people also have a lot of political clout. The unwashed masses are not getting their hands on such people's money any time soon.

Then there are all sorts of other issues such as the effects of climate change and resource depletion. People often think that climate change is an issue of the scruffy left. When people like Jeremy Grantham are really concerned about this issue, you know it's time to sit up and take notice.

There are also, of course, the issues of ageing populations in developed nations, declining birthrates and so on. Amongst other reasons, Japan is about to implode from demographic issues. Other countries, including Britain (even with immigration) are not far off.

The world absolutely is going to get a lot worse for most Westerners in many ways (there will still be ways in which it will improve though). There are a whole lot of major factors involved in this that are largely beyond the control of not only us as individuals, but also governments (though governments are doing their best to make things as bad as possible). For some individuals, it's not so bleak as long as they don't stick their heads in the sand (which would include expecting politicians to solve any problems). In fact, during times of chaos, there are tremendous opportunities, and great wealth changes hands.

I don't know how much you read about these kinds of things, if at all, but there's lots of really, really interesting information out there, and a lot of it is free. John Mauldin has a series of weekly newsletters, often with contributions by really top notch people. Check out anything to do with Kyle Bass. Nassim Nicholas Taleb is of immense value. Look at all the behavioural economics/investing guys (all the usual guys you can find in the wikipedia link, plus James Montier). Look at all the value guys going right back to Benjamin Graham. Basically, anyone who is contrarian. This is a very long (two part) post on the state of affairs that is equal parts incredibly helpful and really depressing. Follow the links, look up names. There's all sorts of interesting stuff out there.

All the mainstream/government economics/finance guys are not wrong. THEY'RE ACTIVELY LYING. Alan Greenspan and Ben Bernanke should be tried for crimes against humanity. Yet you can't save humanity from itself; that's never been possible. All you can do is make sure you don't run off the cliff like all the lemmings (and believe me, they will run off the cliff).
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Re: The future for the British economy

Postby Charlie » 19 Feb 2013, 20:05

Just a short post...

Nathan, I can really identify with what you wrote, not least because I'm in the same profession as you: translation. As you mentioned, the stakes in our line of work are now much higher - as they are in countless others - and as a result I shall be entering higher education this year to get an MA in my discipline. Financially, it's a big investment to make, especially in the uncertain world that we're living in, but I feel it's necessary to fully make the most of our particular niche.

Caleb, thanks for that post - I'm going to have a look at some of the names you mentioned. I've been meaning to read Nassim Nicholas Taleb's books for a while. For me, the name of Kyle Bass came up via Michael Lewis, whose last few books I enjoyed.

Light at the end of the tunnel? It would be nice to think that there was at least some, wouldn't it?
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