More of the Same, or has the Appetite Changed with the Eating?

Is it More of the Same, or Does the Appetite Change with the Eating?

Introduction

Firstly, many apologies for the long gaps between entries. My studies, and other matters have been intensely vying for competition with my sleeping patterns for a few months now. I have reached the end of my current module, and have sat the written exam, for which I am awaiting a mark, and now have a break in studies until the end of January, when I will begin my third module, DD309 - Doing Economics. This will take me from economic theories to economic calculations. (That reminds me, I must buy a calculator.) In this entry, I will be reviewing the module I have just finished. I will also be using this entry to gauge whether or not my studies have caused any change in my outlook, since many people who study on a full time basis have been known to enter the workplace with new, or newly developing changes to their outlook, often with a softening of any left-leaning political views. Champagne Socialist is a term which is often used as a description of this outcome.

Why study economics?

When the opportunity to study became available, I already felt that I would most likely study a social science. The Open University has a wide choice within this field. As a student who would be eligible for financial support, I had to give a commitment to the OU that this support would not be squandered on me, so was asked to choose a specialism from the outset. I went away, looked at the options, and settled on economics. At the time, I remember thinking that may of the specialisms would be no more than "hobby studying". Now, I have no desire to belittle people's academic aspirations, but studying, for example,  criminology is unlikely to get you a job any time soon. Why? Well, Scotland's eight police forces have now merged, so with a centralisation of resources, job prospects are probably going to be squeezed. Also, CSI is not real. So, with one eye on future employments prospects, and an innate feeling that I had a handle on the present recession, begun in 2008, (which an economics qualification was not needed to foretell), that maybe understanding the workings of economists might actually be useful in avoiding such grief in future. Again, more on that later.

The new economy. The same old story.

I wrote an entry on the New Economy (IT in the 90s) at the beginning of the year, when I had not long started on this module. Rather than go into detail, I will summarise that entry here as best I can. The new economy came about as an innovation to the market in personal computers which had begun in the 1970s. Innovations in the capabilities of processors and the advent of the internet led to the dot com boom (and subsequent bust). This also changed working practices for many people, and led to the creation of new types of jobs within the economy. This led, initially, to many people retraining in IT skills, and in some instances, moving to where the work was. A standardisation process then led to many IT based jobs becoming easier to do, and therefore, being lower paid. What began as an exciting new industry was shaped into a production line of computers. I have personal working experience of this setting, from a job I had in 1990, in an office full of long tables, with rows of computers. As I finished entering the data for one part, the next item would automatically appear on screen, and this process would be repeated all day. A similar working practice evolved from the Industrial Revolution of the early 19th century, in textile mills. Previously, spinning, yarning and looming had been done at home, paying by the amount of work done. With the innovation in energy supply, steam, water driven, then later, electricity, this work could be done in what came to be known as a manufactory, now just factory. Because of the centralisation of, and cheapness of production, home textile workers were left with little choice but to move to where the work was, in the ever-growing cities. This process is repeated in the car industry towards the end of the 19th century, when production line techniques saw the growth of huge factories, to which people migrated from all over the USA to work in. One difference in the new economy, is that more and more, people can work from home. This may be seen by some as an advantage, but in reality, you are never entirely free from your work, since in order to work from home, you must be contactable by your employer, who may take advantage of this by e-mailing, texting, or 'phoning you outside of "office hours". So, in all these instances of innovation in a market, producers benefit from the use of newly available technologies in the workplace, and in use of labour to get the most profit from their investment. In all the examples above, this has come at the expense of the rights, conditions, or pay of their workers. Mill workers were now paid a flat daily rate, rather than by the amount produced. Car workers were comparatively well paid, but were strictly refused union rights. People working from home are very rarely actually away from their work.

Competition and policy

Some of what I have to say here can be linked to the above section. At least, in terms of how firms come to maximise their profits, and about who, ultimately wins and loses in the processes. Firms compete by trying to make the most profit for the money they put in. The ways in which they manage this is by trying to squeeze the most out of their resources (equipment, materials and labour) for the lowest possible price. This may come across as a fairly simplistic view, but it is, nonetheless, the best way to describe the process. Government policy in this matter may not be an apparent factor at first glance, but government policy on such factors as minimum wage, interest rates, exchange rates and inflation control all have their part to play.

Governments have also made claims to encourage competition. There are many arguments for and against this being the case, and depending on your views, you may, or may not believe that government intervention on such matters is necessary. On one hand, the US government tried to address the issue of Microsoft's monopoly, by attempting to split the company into two parts. The problem, in my view, was not the size or profitability of Microsoft (Bill and Miranda Gates' charitible donations are no bad thing), but the fact that makers of PCs were given no choice in the operating systems. Where there is no choice, it can hardly be said that there is competition. This is akin to the standardisation of practices (as in textiles and car building) where firms either adapt, or fail.As it turned out Microsoft is still intact, and is still the industry standard, and as such, strives to constantly innovate its product. The problem here, is that this innovation is more about getting customers to spend more on a slight variation of an existing product, rather than creating new jobs.

The failure of government policy here should be a warning about any other government rumblings about competition and choice. Why? There have been more failures than than successes in this, and the most recent discussions around competition and choice from the UK government is in relation to the National Health Service. I don't think this needs any expansion, simply because, based on the ratio of failure to success, policies on keeping down wages, the prospect of people's healthcare provision being subject to the forces of markets and inflationary pressures is something to worry about.

Another issue which makes competition difficult to trust is the collusion of firms. Firms can become part of cartels, which lead to price fixing which affect not just the consumer, but their suppliers. This kind of practice can even affect government policy. The OPEC price shock in the 1970s led to all manner of cost cutting measures on a national level by the UK government, from turning off streetlights up to the decision to have a three day working week. A more recent example, and an ongoing one at that, is with banks. Banks have been proved to be in collusion over lending rates, have been selling parcels of unsustainable debt to each other, leading to the recession affecting many parts of our world now. despite the fact that taxpayers' money has been used to bail out these institututions, the possibility of government policy being drawn up to prevent further outrages,  has lead to banks threatening, yes, THREATENING governments with leaving to be based in other countries, with the loss of jobs and income from the respective countries.

So, government policy on competition does not work. Deregulation of the financial sector in the UK, begun by the Tory party, and continued by Labour, has led to the country being held to ransom by banks. It may be dramatic, but the best metaphor I can think of for this, is of a woman, married with kids to an abusive husband. To leave would, at first, make it harder to provide for her kids, but in the long run, would be better for her and them.

National Economics

This marks the change in the module from Microeconomics to Macroeconomics. Governments have, for most of the twentieth century, taken the financial state of the nation to be a source of self congratulation. That is to say, if GDP is increasing, then the country is doing well. Straight away, there is a patently obvious hole to be picked in this measurement, and it relates the recently, and much used ratio of percentages. 99% to 1%.

If a government can reduce its national budget deficit, then that is generally seen to be good for it economy. No argument there, the same applies to individuals and households. It makes sense to balance the books. The issue is how that is done. Some governments will do this through raising taxes, or cutting public spending, or through policies regarding imports. Mostly, attempts are made to balance the books through cutting spending, since no one wants to pay more tax, (or, in the case of corporations, ANY tax). A model, known as Circular Flow, shows a very straightforward illustration of the flow of money around an economy.

 Without getting too bogged down by details,  this shows how firms inject money by paying salaries to households, households spend this money, and government receives taxes, which is used to pay off loans and on public spending. Savings and imports are described as leakages to the flow. Exports are injections to the flow. This simple diagram shows how, if government spending is increased, could have a positive effect on the amount of money in the flow. Other people could argue that it might show an increase in government spending, as raising taxes, so taking money out of the flow to firms and households. This is the problem with diagrams and statistics. They can be manipulated to suit the arguments of the person describing them. In this case, I would apply  Keynes multiplier to the above diagram.

In short, Keynes multiplier effect states that, if a government injects an amount of money into a public works, eg, road building, then the financial effect does not stop there. Materials are needed to build, so are bought from firms, and labour is needed to carry out the work. The workers then have money to spend, so more money flows out in to the wider economy. Everyone who earns from the money flowing in will be keeping other people in work through their consumption, and taxes raised will flow back to the government for future spending. The other aspect of people being employed is to cut down the amount spent by governments on benefits/welfare payments. This would free up more money to further invest in public expenditure, and to reduce the national deficit, so, in future, tax rates could be lowered. The problem with this system is that people and politicians often do not take the long view that paying now will ease the burden on their children and subsequent generations. This is the tragedy of greed, self-preservation, and conservatism.

Unemployment and Stabilisation

Unemployment has been the defining feature of many of the recessions of the last 80 years. As I wrote above, unemployment need not be an option for a country willing to forego short term greed-driven policies. In fact, apart from the social problems it brings, taking money out of the circular flow is just plain stupidity, as shown in the above section. Stabilisation is something successive governments have striven to achieve. The problem is that when governments change, so do the way in which policies are used to achieve this. What has been used by many governments is to inversely balance out unemployment with inflation. So much so, that, when Norman Lamont was Chancellor to the Exchequer, he gave a speech in the House of Commons, stating that "rising unemployment and recession ..was a worthwhile price to pay to get inflation down".

So, the end result of getting prices down, and attempting to boost consumption, was to be paid by putting people in financial hardship, and the ruining of many small businesses, who were unable to sustain themselves as well as large firms, who the got the extra bonus of picking up the customers of the failed small firms, so making them even bigger. This is the same cycle as with home working textile workers trying to compete with the big mills, or with hand built cars losing out to assembly line factories. The only difference here, is that this change was not the result of innovation, or new markets, but of government policies which, ultimately, favoured the few over the many. This cycle can be seen now, in the aforementioned ratio of 99-1.

What I have 'learned'.....

I haven't covered every topic of the module in this entry. Rather, I have looked at aspects of both micro and macro economics, in order to answer the questions I posed at the start of not only this entry, but at the start of my study of economics. Are we seeing more of the same in economics, and the effects on the world?  Has my outlook changed because of my studies?

First, I will look at myself. I have always been left of centre in my political views. Recently, I have been known to describe myself as being left of left. I should quantify that by pointing out that this is my sarcastic comment on where (in the UK) the Labour party should be found, but has, since Bliar rescinded Clause 4, (the commitment to public ownership) have been sadly absent from. Some people find their views softening, or becoming more centrist as they leave education and move into the workplace. Even more so when they become parents. In my case, I came to higher education after becoming a parent. What I experienced after becoming a father was that my willingness to merely mutter under my breath about social ills, such as casual racism, smoking on buses, (the list is not exhaustive, and we all have our dislikes), became a much more vocalised and clearly defined opposition. Now that I am in higher education, I find that ignorance is not bliss. Nor is it a given that being without a qualification makes one ignorant either. I am studying economics, not to get a steady job in a bank, or to go straight into some middle-management admin role. I am studying economics in order to be able to meet head-on the so-called reasoning behind the disparity I see in the world. I need to know my enemy.


Now, to economics. Economics, as we see it around us, is based on capitalism. Capitalism is all about getting the maximum return on capital investment. This desire for profit has driven every technological and industrial innovation since Jethro Tull realised that he could do more with his draft horses than simply break up hard ground for planting crops. Every process since, has been about maximising the resources at hand. This has seen the rape and/or misuse of many ecosystems, a dangerous increase in the use and dependence on fossil fuels, and of course, the disruption to the lives of, and erosion of the rights of workers. At this time, the gambling on debts, the over use of credit, and deregulation of banks has left many parts of the world in poverty, with debts likely to be passed on to future generations. The processes which have lead to this have more to do with returning dividends to shareholders and making money, than for improving the lives of the people who work to produce goods and services. Worse still, is that the descendants of these workers will be left to pick up the pieces. The process of self-preservation means that the descendants of those who perpetuate capitalism as we know it will probably not have to concern themselves with the burdens of inherited poverty. On this basis, objections to inherited wealth are entirely reasonable.

What I would hope, after reading this, is that people ask themselves some questions.
Have my core beliefs changed over time?
Do I still display these beliefs, or pay lip service to them?
Would I choose a system which leaves my descendants trapped in the cycle described above?

I have asked myself all these questions, and I feel that I am doing all I can, including empowering my children to understand that they do not need to accept the status quo, just because that is the way it has been for so long in human history. That, is what they will inherit from me.