Economic growth explained

An experienced economist and a novice economist are walking down the road. They come across some dog shit lying on the pavement.

The experienced economist says, "If you eat that dog shit, I'll give you $20,000!"

The novice economist runs his optimization program and figures out he's better off eating it, so he does and collects the money.

Continuing along the same road they almost step into another pile of dog shit. The novice economist says, "Now, if you eat this shit I'll give you $20,000."

After evaluating the proposal, the experienced economist eats the shit and collects the money.

They go on. The novice economist wonders, "Listen, we both have the same amount of money we had before, but we both ate shit. I don't see us being better off."

The experienced economist retorts, "Not so! We've created $40,000 of trade!"

Growth, jobs and debt

A couple of years on, 23,000 job losses, 84% stake by taxpayers has provided a modest £1.1bn profit for RBS. Other banks are returning to their modest profits, Barclays: £4bn; Lloyds: £1.6bn; and so on.

Meanwhile unemplyement has soared by 3% (to 8%, i.e. risen by 60%) and the country's total debt is around £4 trillion. £1.5 trillion is in personal debt - money that you and I owe to the banks most mortagages (£1.2 trillion).

This is from Credit Action: "Average household debt in the UK is ~ £8,650 (excluding mortgages). This figure increases to £18,021 if the average is based on the number of households who actually have some form of unsecured loan."

GDP has increased by around 50% in the past 10 years and our ConDemLab parties all want it to continue to rise for ever. For GDP to rise we need to consume more, spend more and borrow more. Our UK consumption levels already mean that if the whole world consumed the way we do, we would need a couple more planets to live on.


The solution will have to be radical.

Personal debt is crippling but driven by our perceived needs and the way that the economy is structured. Capitalism continues to drive the wealth to the few and provide bail outs when necessary. The austerity cuts are driving inequality upwards and moving us towards a double dip recession which will push unemployment higher. And of course consumption is slowly killing us all.

There are good groups of people with the right type of ideas. This is from the people at the climate camp who are outside RBS this month:

Next global recession due shortly

Happy headlines on the Energy Bulletin: The IEA warns of shortages - "The next oil crisis is coming"

It is suggesting that oil prices will hit a new high in 2010 as the global recession eases and growth restarts in earnest. As reserves are falling and production will not meet demand, the price of oil will soar again creating inflation and recession. Boom and bust and bust.

The only solution is to kick the fossil fuels habit quickly, to accept that economic contraction is necessary and good as long as it is a managed. We can't carry on consuming at our current levels, therefore the economic has to reduce in size. We either do it in a chaotic and unfair way that means poorer people suffer while the wealthy are protected or we do it in a managed way ensuring that jobs are created in new sectors that consume less and have more intrinsic value to society.

What we don't want is to replace one form of rampant consumerism with another. There is no point is paying people to scrap their cars so they can replace them with new ones just to keep an industry going, or pumping money into electric cars rather than public transport.

Economic recession doesn't have to hurt too much as long as it is managed properly. All change is uncomfortable as we are creatures of habit, but building communities based on localism and ensuring that goods are of a high quality and built to last (no built in obsolescent) have to be good for society.

The worst choice

Received this from Comrade Fidel today, it is especially poignant at this time. Economic growth cannot continue, but neither must economic depression be chaotic. Reducing our impact on the environment means consuming less which will reduce GDP, the secret is to do it in a controlled and fair way. It is no good allowing the market to dictate life, the market just increases inequalities.

Castro's point about the US dollar being one of the few international currencies is interesting. This gives the US an even higher degree of influence that they would have from just being a superpower. An independent single international currency is essential in a fair world.

Anyway, this is the email from Fidel:

Today, I read that the US Federal Reserve had opened a new line of credit for the Central Banks of Mexico, Brazil, South Korea and Singapore.

The same report claimed that similar credits have been issued to the Central Banks of Australia, Canada, Denmark, the United Kingdom, Japan, New Zealand, Switzerland and the European Central Bank.

Based on these agreements, the Central Banks shall receive funds in exchange for hard currency reserves from these countries which have sustained considerable losses due to the trade and financial crisis.

This way the economic power of the US currency is asserted, a privilege granted at Bretton Woods.

The International Monetary Fund, which is the same people under a different name, has announced the release of high sums of money to its clients in Eastern Europe. Hungary will be receiving the equivalent of $20 billion euros; a large part of these are dollars coming from the United States. The machines keep minting bills and the IMF keeps granting its unfair loans.

On the other hand, the World Wild Fund stated in Geneva yesterday that at the present spending rate, by 2030 humanity will need the resources of two planets to keep up its life style.

The WWF is a serious institution. There is no need to be a University graduate of Mathematics, Economics or Political Sciences to understand what this means. It’s the worst choice. The developed capitalism hopes to continue plundering the world as if the world could still stand it.


Fidel Castro Ruz
October 30, 2008
8:05 p.m.

Carbon reduction not a high priority target for Maidstone

Maidstone Borough Council's Cabinet decided not to make carbon reduction a high priority target for the borough. They prefered economic growth. Both Lib Dems and the Tories backed the prioritisation of the targets, i.e. both parties were happy that reducing Maidstone's carbon footprint was not a high priority target, yet economic growth was (it was stated at the meeting that the New Business Registration Rate is an excellent proxy for economic growth).

Another nail in the coffin of the LibDem claims that they are green. In fairness to Mark Woodin (Con) he was the only one to suggest that this target should be upgraded (thanks Mark), but his suggestion fell on deaf ears and he also agreed for the priorities to be passed as set out below.

As an aside, James May from Top Gear, was dicussing renewable energy on TV last night and presented a sensible picture. He started by saying that he wants an energy source that will last forever and only renewables can do this. If a Top Gear presenter can get what Greens are saying, why can't Maidstone's councillors?

The adherence to the need for economic growth by the Tories, Lib Dems and Labour is one of the key differences that sets the Greens apart from them. Continuous economic growth on a finite planet is simply not possible or desirable and certainly not sustainable. A stable economy does not grow and we should not keep using up finite resources.

The other interesting comment at the cabinet was from the Tory leader, Chris Garland, who suggested that the Growth Point status was a good thing for Maidstone. The Growth Point status was voted in by the LibDem administration (plus a number of Tories) in March 2006 and increased the house building target over the next 20 years by 20%.

Extract from the cabinet agenda, 23rd Oct 2008:

1.2.1 That based on an examination of the available data, laid out in the draft LAP (Appendix A), the Cabinet agrees that the following National Indicators should be given the highest priority within the new LAP and that this be reported to the Maidstone LSP and Kent Partnership:

High priority
1. NI 15 -- Serious and Violent Crime
2. NI 21 -- Dealing with local concerns about anti-social behaviour and crime by the local council and police
3. NI 39: Related Hospital Admissions per 100,000 for Alcohol Related Harm
4. NI 47: People killed or seriously injured in road traffic accidents
5. NI 55: Number of affordable homes delivered (gross)
6. NI 75 - Achievement of 5 or more A*-C grades at GCSE or equivalent including English and Maths (Threshold)
7. NI 110 - Young people's participation in positive activities
8. NI 117: 16 -- 18 year olds who are not in education, employment or training (NEET)
9. NI 141 Percentage of vulnerable people achieving independent living
10.NI 154: Net additional homes provided
11.NI 163: Proportion of population aged 19 -- 64 for males and 19 -- 59 qualified to at least a level two or higher
12.NI 171: New Business Registration Rate
13.NI 191: Residual household waste per household
14.NI 187 - Tackling fuel poverty - % of people receiving income based benefits living in homes with a low energy efficiency rating

Medium priority
1. NI 8: Adult participation in sport and active recreation
2. NI 55: Obesity in primary school age children in reception
3. NI 111: First time entrants into the youth justice system aged 10 -17
4. NI 120: All age all cause mortality rate (All Persons)
5. NI 186: Per capita CO2 emissions in the LA area
6. NI -- 189 Flood and Costal Erosion Risk Management
7. NI 73 - Achievement at level 4 or above in both English and Maths at Key Stage 2
8. NI 83 achievement at level 5 or above in Science at Key Stage 3
9. NI 87 - Secondary school persistent absence rate
10.NI 3 - Civic participation in the local area
11.NI 11- Engagement in the Arts