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People power

Stephanie Flanders | 13:14 UK time, Wednesday, 1 September 2010

There's been a striking change of mood in global financial markets since I left for my summer break: now it's the US that everyone is gloomy about, and views of the eurozone's recovery are more upbeat.

But there are two reasons to think that the smart money will sooner or later return to the US.

The first reason is simple - and fairly immediate. As this chart, from Capital Economics, suggests, the business cycle in the eurozone often operates a few steps behind the US.

Chart showing euro zone and US GDP

Source: Capital Economics

Add that historical pattern to the slightly more disappointing business surveys and other data coming out from the Continental economies in recent weeks, and you can see why some think the clouds which hung over the US in the summer will be crossing the Atlantic pretty soon.

That seems all the more likely, when you consider that the eurozone economies have depended on the rest of the world for much of their growth. Of the 1.7% rise in eurozone GDP since the trough of the recession in 2009, as much as 0.8 percentage points is due to net trade. Whereas trade has played a negative role in America's recovery so far.

The less polite way to put that would be that the US, thanks to its continuing appetite for imports, has once again been acting as a locomotive for global growth - albeit one with less horsepower than in the past.

Most of the eurozone economies have been growing at the rest of the world's expense: taking more demand from the rest of the world economy than they put in.

The only exception is France: it has grown more slowly than Germany this year, but more of its growth has come from domestic demand: in the second quarter, imports grew by 4.2% versus 2.7% growth in exports.

So, where the US economy goes, you can probably expect the eurozone to follow. But there's another, more fundamental reason to be less hopeful about Europe's long-term prospects than America's, which European politicians are only too familiar with.

It all comes down to demographics - or people power. Put simply: America is going to have plenty of people to help grow its economy over the next few decades; the eurozone, not so much.

Michael Saunders, economist at Citi, put together the numbers in a recent report.

It's not exactly a revelation that Europe's population is aging, and its labour force is growing more slowly than America's. That's been true for a while: indeed, Germany's working age population has been falling for some time. But, as he shows, the demographics in certain countries are about to got a lot worse. The news is especially bad for Spain, which you might think had troubles enough.

As we know, the Spanish economy took off after joining the eurozone, growing by 3.7% a year, on average, between 1999 and 2007. We now know that a lot of that growth was built on an unsustainable credit and property boom.

What you may not know is that the growth was also fuelled by rising labour force, itself due to massive immigration. Total GDP may have grown by 3.7 %, but GDP per head only grew by 2.4%.

Mr Saunders reckons that the rise in the labour force pushed up growth by about 1% a year over this period, with greater participation in the labour market by existing workers adding another 1% a year. Both factors are now going into reverse: with a dearth of jobs, the migrant workers are going home, and labour force participation is going down.

As recently as 2008, the Spanish government was expecting the working age population to rise by 5% between 2008 and 2018. Now it thinks it will fall by more than 2% over that time, and many say that is optimistic.

There's been a similar dynamic operating in Ireland, which saw even more dramatic growth in its labour force before the crisis. Unlike France, Germany and Italy, Ireland's working age population is going to carry on growing in the next few years, but much slower than before.

Other things equal, the research suggests that declining "labour input" - also known as a declining number of willing workers - is going to cut Spain's potential growth rate by about 1.5% a year between now and 2020, and cut Ireland's trend rate of growth by about 1% a year.

Italy is also going to suffer. France and Germany will get none of their growth from rising labour inputs - but that was also true for much of the boom.

The net result, across the eurozone, could be to knock 0.25-0.50% off the eurozone's long run trend rate of growth. That might not sound like much, but when you're looking at growth of less than 2% a year, every little helps.

As the chart shows, the story is very different indeed in the US. There, as ever, sheer people power is going to be adding to the country's potential growth, almost regardless of what happens to the rest of the economy.

Chart showing euro area and US working age

Faster labour force growth can't solve all of America's problems, and it certainly can't guarantee a higher national standard of living. GDP per head might stagnate, even as overall GDP continues to rise. But by making nominal GDP grow faster relative to government borrowing, it makes the long-term debt dynamics for the US a lot easier than Europe's.

In the short term, it also makes it easier to shoulder the cost of all those baby boomers growing old. And, of course, it adds to the impression that the US is still a young country, whereas most of Europe is growing old.

Demographics aren't everything. There are plenty of other reasons why one country may grow father than another. But their very different demographic fortunes do provide another reason why investors may end up choosing America over Europe.


  • Comment number 1.

    Stephanie --
    How on earth does that Euro/Yank chart support your thesis? There's a rough match until the 1980s, followed by something that (from a European perspective) looks like a loss of volatility and/or a reversion to the mean, followed by a single data point that agrees (US 1991, Euro 1993), followed by an extraordinarily close match.

    Is the academic study of macro-economics via charts dead yet? If not, why not?

  • Comment number 2.

    I hope that you enjoyed your holiday.

    Can't totally agree with DrLoser. However, all the chart really shows is the general impression that there exists a lag between US economic trends and those of the UK (in particular) and the EU in general. Therefore, the chart does support the general impression.

    To my mind the real question is "Witherest goes the US economy", if we are to use the above impression as a guide? Now many will know that I have not been optimistic concerning the long term economic future and the latest US economic indicators merely strengthen that conclusion for me. Whilst we worry ourselves in the UK about the possibility of double-dip recession (for me a certainty by 2011) this will be a mere side-show if the US seriously stalls.

    If we move to the 2nd part of your article and the relationship between growth and labour input. Are we not in danger here of re-creating the old sulpher index? We may be able to find a relationship but is it of any real value in understanding the economic future? After all this Labour Input index only becomes sustainable when it is related to GDP. As many have pointed out on this blog CDP is, in itself a very inaccurate and blunt indicator of economic health/strength.

    Sorry to start-off a new season in a negative tone and I hope that other posters can present a counter argument.

  • Comment number 3.

    Has anyone consulted Paul 'the-world-cup' octopus recently about economic predictions?

    If not, why not?

  • Comment number 4.

    Stephanie wrote:

    "There's been a striking change of mood in global financial markets since I left for my summer break"

    So you were wrong then - as some of us said at the time!

    I still analyse the problem with the global economy as too much debt as I did a decade ago. We had a little shock in 2008 but we are still in denial. The so called economists could not see the train crash in the noughties and they seem reluctant to learn from their mistakes.

    US property is still overpriced and carrying too much debt for its price, just as it is here (and in Eire I think). This debt has to deflated one way or another before we can recover. Nobody is addressing this obvious issue - why? It seems so obvious to me (as it has for over a decade and as I pointed out the the BoE several times.)

    We have to be competitive. To be competitive property needs to be competitively priced, both commercial and housing stock. Our property is still far too expensive for us to be competitive. It carries far too much debt. This debt has to be deflated for us to be able to recover (as it does in Japan etc.)

    Our real economy needs to (must) be revitalised and we have one huge advantage being part of the EU - however the bankers are preventing the UK from benefiting fully from this 'home' market by robbing UK manufacturers of their profits by both charging to exchange currencies and fiddling with the sterling/Euro exchange rate. They are robbing the British people of the opportunity to recover!

  • Comment number 5.

    What's quite clear by the post is the we need to fundamentally reshape our economies to account for the demographic change.

    Debt payment is one question but the other, perhaps bigger, question is how a smaller workforce supports a larger ageing population and all the social / healthcare costs that come with that.

    We can, and will, work debt down in the next few years and the shrinking workforce helps lower unemployment. Once it gets too low we just outsource more lower paid jobs to India and increase the average wage, so all of that is fine.

    I just don't feel like supporting the healthcare costs of 2 pensioners on my salary. The solution is obvious but not very politically palatable. We are going to have to balance this with some intelligent immigration control.

  • Comment number 6.

    As for 2 reasons you think that the smart money will sooner or later return to the US, I don’t think you can use historical patterns to estimate either EU or US performance because the US is so loosely regulated (as to be non-regulated at all) and the EU is tightening its regulation. The fact is, thence forward, you may find (indeed are likely to find) that the business cycle in the eurozone will operate many steps ahead of the the US.
    Of the 1.7% rise in eurozone GDP since the recession, @ 0.8% is due to net trade. Whereas trade has played a negative role in America's recovery so far, and will likely to continue to do so because the United States has outsourced so very much of its mnaufacturing and therefore has created a seed-bed of importing without any hope of balancing its trade. The less polite way to put that would be that the US, thanks to its continuing appetite for imports, has put itself in the position of trade imbalance that has no end.
    Where the US is going, with its endless printing of more money that it doesn’t have, I will NEVER concede that the EU is also going. The EU financial wizards are simply too bright for that outcome and too regulation-minded.
    I don’t agree that it’s a matter of demographics - or people power. It’s a matter of innovation, creativity – all those qualities – that make a country more productive, often without as many people. In fact, sometimes, too many people can get in the way and end up in job lines because they cannot cope with new technologies. I would ask Michael Saunders, economist at Citi, so what that Europe's population is aging, and its labour force is growing more slowly than America's? Amnerica’s unemploument rate is in doube-digits and growing. Is that supposed to be a good thing? Europe should be so lucky as to have less of a labour force to worry about.
    You can always increase the labour force via Immigration policies requesting the skilled labour that you need; you cannot shoot your own citizens as they stand in line hoping for a job that does not exist. In other words, it’s better for the labour pool to be light than for the labout pool to be heavy.
    In the US, sheer people-power is going to be adding to the country's potential growth, almost regardless of what happens to the rest of the economy. The right people with the right skills? The right employers with the right jobs? Or…an angry unemployable mob growing angrier and more frustrated by the day. Faster labour force growth can't solve all of America's problems, and it certainly can't guarantee a higher national standard of living. GDP per head might stagnate, even as overall GDP continues to rise.
    There is nothing easy about the US debt dynamics because the one dynamic that counts is this one: the United States is trillions and trillions in debt; she can’t even afford to fix her infrastructure, and this has been caused by endless expenditure on military and foreign wars, as well as poor financial regulation where entities like hedge funds can actually bet against American success.
    If you have any faith in the American pension scheme (or even Health Care scheme), you have a bigger imagination than I do. Anyone foolish enough to chose the United States over the EU has not studied the simple differention between loose financial regulation and tight financial regulation, and this one simple fact will bring double-dip recession to the United States, and I believe ultimate bankruptcy.

  • Comment number 7.

    Government politicians may be concerned mainly with rates of growth, because this is a good swagger factor at international conferences and the like.

    Individuals, on the other hand, are more likely to be concerned with the well being of themselves and their family. In particular on whether they can obtain and keep decent jobs. If the work force is decreasing in numbers and limiting growth, it is likely that the prospects for individual workers will improve as a result of the relative shortage of labour.

  • Comment number 8.

    Go back to the Thatcher era and consider just how far public spending was cut then - the state of the global economy at the time - and how deep the recession was that followed, which was only brought to an end by the der-regulation of the financial services industry which sparked a series of speculative booms that ended with the trainwreck of the sub-prime credit crisis meltdown.

    IMHO this time the ConDems are both cutting deeper and faster, at a time when the global economy is in a much worse state. "We're more radical than the Thatcher Government" is the claim - I believe them.

    There are clear signs of where we are going: Cornwall County Council is cutting 1 in 6 posts - other LAs are doing the same - leaks from the Treasury project 1.2 m public sector jobs going.

    300,000 construction jobs were maintained by Darling's accelerated capital works programme (hence construction's 8% growth last qtr.) and another 100,000 are about to complete construction for the Olympics - say a round 500,000 jobs about to disappear in the next 2 qtrs.

    Taken together, UK PLC is probably about to get another 2m unemployed from just these two sectors alone. Add in defence cuts, the continuing decline in manufacturing and the impact this will have on the retail and service sectors, and you've got a perfect storm looming this winter.

    And as unemployment rises, the tax take will fall and the cost of welfare payments will balloon - and with it the public sector borrowing requirement. Meanwhile the forecasters are predicting a big rise in personal debt.

    So the policy intended to reduce our debt will probably end up increasing it and our astronomical level of personal indebtedness which Vince "the-Noose" Cable goes on about ad nausium is being driven even further upwards....

    We will be left between a rock and a hard place - not able to make any more cuts because all that will do is to further shrink the economy - not able to borrow to reflate the economy out of the depression, whilst our triple A credit rating will have gone by the board anyway because our sovereign debt will have to be rescheduled, as there won't be the revenue to service it.

  • Comment number 9.

    Hi Steph

    An interesting analysis. The question is, what is the more significant indicator, gross GDP or GDP per capita? It is easy to say that a productive workforce is growing the real economy and therefore the future for the BRIC economies looks far rosier than those of the West - they have a much higher proportion of the population of working age and both gross and per capita GDP are growing strongly. However, once money (or wealth) has been created it can't be destroyed - it just gets transferred from one person to another. The amount of wealth in the west, particularly the US, is staggering. We're not done for yet!

  • Comment number 10.

    #8. richard bunning wrote:

    "IMHO this time the ConDems are both cutting deeper and faster, at a time when the global economy is in a much worse state. "We're more radical than the Thatcher Government" is the claim - I believe them."

    Thatcher 'talked' big cuts but history relates a different story. The Condems are TALKING big cuts, but the out-turn may be entirely different! Do not despair .... yet!

    However the biggest real legacy left us by Thatcher is the philosophy of light(=no!) regulation and that is still all pervasive and is arguably the primary cause of the 2008 crash - so beware! The other problem we have at present is that we (G Brown/ A Darling) have already spent the Keynesian deficit expansion money and there is nothing left in the kitty (but again this was also the impression in the 1930's before the TVA etc...) The biggest problem I see is excess debt (both private and public) - it has to be reduced/deflated/de-leveraged before we can recover. This is also a perquisite to getting interest rates up and rescuing the idea of saving and the pension funds (incl. the BBC's little problem!)

  • Comment number 11.

    Heretical view coming up.
    But that does not mean it is not valid.

    The graphs, trends, charts mean nothing.

    We are where we are.
    Past performance is merely interesting.

  • Comment number 12.

    Well I hope you had a good break.

    However you don't mention the internal Euro situation as if the PIIGS problem had gone away rather than just been delayed.

    Perhaps you need to catch up with Spain where domestic demand is growing but the GDP isn't. How, when there are 20% unemployed? Simple the Germans have effectively lent them their savings and the Spanish are spending them on imported German goods, thus boosting German manufacturing! That and propping up the balance sheets of Spanish banks. Spanish ( and Greek and Portuguese) unit labour costs continue to inflate faster than Germany and there is no discernable plan to replace the roughly 20% of GDP that came from construction. With the Spanish banks estimated by some to be the effective owners of 450,000 properties who's buyers have defaulted there isn't much prospect of demand for new builds for quite some time.

    The Euro problems haven't gone away but been deferred and when they come back it will be even worse because Spain etc will be even further in debt and need an even bigger bailout. What then?

  • Comment number 13.

    Re: 10.

    Fair comment - I entirely agree about "light regulation", but as this is now a busted flush, even the Tories (75% MPs linked to financial services directly) recognise this is twaddle. (BYW, we seem to have elected the Bankers' Party into power - how did that happen?)

    TRADE is the real issue - Cameron quite rightly recognises the imbalance in our economy and wants to cut Fin Servs and expand manufacturing, but he's not doing anything that will change this. The rigged foreign exchange rate for Chinese goods plus the near-slave labour regime in China means UK PLC can never compete - we will never export our way out of the recession/depression, so we must substitute our imports with home-produced goods. If this means import controls/tarriffs, so be it.

    "free" trade is just as much a myth just as "light touch" regulation is - it's a license for abuse and when you consider that a small increase in the price of goods made in the UK instead over those imported represents huge numbers of jobs and a vast cut in the welfare bill, I'd rather pay a bit more for my fridge/computer/TV/Ipod than foot the bill for the welfare costs - "free" trade is simply too expensive for us to afford and its a lie anyway.

    We need a co-ordinated trade & industrial policy - phased in import tarriffs with incentives to set up manufacturing in the UK, combined with an aggressive move away from imported fossil fuel to renewable home produced energy - and food. Want to sell to the British people? Well, employ them to produce your goods and services, or you will foot your share of the cost of the UK's unemployed and the debt we incur from imports.

    The ConDems will never do what needs to be done - they are ideologues trapped in a libertarian dream world, obsessed with "the magic of the market": this is the new religion that extends from the neocons through to New Labour - a blind faith in the market that defies logic, history or morality.

    A sustainable economy, a sustainable society that is environmentally sustainable - there is now no alternative. What we have now is not sustainable - and it never will be until we produce what we consume, we employ all our people, give them a fair living wage and protect our environment - the "magic of the market" is not the answer - its the problem.

  • Comment number 14.

    Britain's birth rate rose from 2001 and our 'dependency ratio' - the balance of pensioners vs. workers - is more favourable than in most of the EU and Japan. Which is worth noting for the future.
    And you're correct Stephanie, the USA has an even more favourable 'dependency ratio' than either Britain or the EU. So that an higher proportion of US national income can be deployed on investment and consumption.
    Lots of people who should have known better, predicted the decline and fall of the USA economy in the 1980s. They were wrong.
    The US economy is more dynamic than either Europe's or Japan's. Partly because the US still has a population density that's more than seven times lower than Britain's, with room for expansion. And partly because it does not suffer the disadvantages of ancient class battles.

  • Comment number 15.

    Anti-Euro Agent Flanders back at work...

  • Comment number 16.

    Why is it that you are merely touching on the amazing revelation that the rest of the west follows the U.S. Who pours your coffee in the morning? and is it only coffee?

    I am subscribed to (as I presume many bloggers on here are too) quite a few other analysis sites and this blog is always consistently following 10 waves after the bluebirds have crashed along the shore.

    The dollar is going to the wall. The US government will soon be bankrupt. The Chinese are saying Japanese debt is MORE reliable than US and Japanese savings have rescinded so the US wont be able to borrow from its Auntie for much longer. The US has continued to kick the can down the road and they have reached the end of the road. US debt is at a level that it can NEVER be paid back - it only has one option to wipe the slate clean. How it does that remains to be seen. But empty shop shelves will soon be appearing in the US as it falls head first into hyperinflation.

    Surely you know this is going on? yes?

    Is it more than rumour that there REALLY was a meeting with Chinese financial politico's in the bowels of St Pauls in the last few weeks ago about the evolution of a new world currency?

    We all know the financial system is flawed since the decoupling from Gold in the seventies it was only going to go one way (and lets not even venture into the daylight robbery that is fractional reserve banking). At the very minimum, new money has to be created to cover last years debt interest. Its hilarious ... and the ostriches on both sides of the Atlantic dont want to face the fact that we are about to hit the ceiling.

    How's about commenting on the real world Steph? venture out of the City of London's wine bars and your docklands combo and take a look around any normal high st. What do you see? Whats missing?

    Do you want some real coffee in place of what you have been drinking?

  • Comment number 17.

    Nice to have you back, Stephanie.

    What I am noticing is how the headlines say we are in for a rough ride one day,then we are booming the next. And vice-versa.
    It depends on who you are, and what you are doing,how you are doing it , where you are doing it, and who you are doing it with.
    Slow ,slow, quick ,quick slow.
    A bit like salsa,with twists and turns and reversals and yet the drumbeat of time moving us all along together.
    In Britain our economic story is part-American and part-European and
    But you are right, Economics is about People ...... and how we treat them.
    And Britain was booming when we welcomed Economic Immigrants,
    Asylum-seekers and Non-Doms,and slumped when we shooed them away.
    Europe too has veered from welcoming those in need to French style Roma Ethnic Eviction.

    Now we have in this country nearly a million people seeking asylum or resident's visas, all desperate to work and to set up in businesses,with clever keen kids.

    Letting them come in, letting them stay ,and letting them get on with their working lives.........
    is what makes America America.
    But America has become too focussed on itself, with its external relations based on paranoia and trade barriers.
    Obama is part of the solution and part of the problem .
    Some of what he says is brilliant and some of it is bonkers.

    We can learn a lot from other places im what they do and what they fail to do.

    In America (and until recently in Ireland and Greece and Spain), new people are welcome and can do well, but they will have to work hard.
    And where that idea is built into the very soul of the culture.
    Happening people go to Happening Places.

    These newcomers need houses and schools and and will work in or start businesses, and bring over or start their families ..... creating a Glee-like demographic and not Last of The Summer Wine.
    These new arrivals are not depriving us of jobs,they are creating them.
    And like-it or lump it, they are what makes the economy tick, even in countries like Switzerland.
    And they would make Britain boom.
    Give us your poor and your hungry ,and let them work,
    for the melting pot will make us all fat and rich.

    I am not worrying about America, or Europe,or China.
    Because they do not really worry about us.
    No,I am thinking about Britain ,with my heart and my head.
    And we do need our hearts and our heads to flourish.
    And I think now, that in spite of the Coalition's ham-fisted hatchet-job on the recovery .........
    in spite of all the doom and gloom and meltdown lovers out there ......
    I think we are on the mend.

    But we all have to cheer up and start thinking about other people.
    We have to be more open and less closed.

    Look at Pakistan...they need more help from us in Britain to prevent millions dying of cholera and exposure... and all our media can do is whine that they are ruining the game of cricket.
    That is not really cricket is it?
    Now a few hundred million in Aid would save a few billion in anti-terrorism measures would it not?
    We are not winning the War of Hearts and Minds in the Muslim World with our mean-spiritedness.
    They have to see that it is smarter and more fun to be friends with us than fighting us.
    Let's pay Israel and Palestine to make friends in the way that America did it to mainland Europe in the later nineteen-forties.
    Let's spend a few million on thinking about how Muslims can be Muslims and yet be free, without oppressing or being oppressed by those in their midst who do not share their beliefs.
    A bit like the Mosque near 9/11.
    Boogie on down with the burkha, baby!

    Meanwhile Europe wants to ban the burkhas!

    Nor is our Economy responding well to our whining.
    Why are we telling our already spoilt youngsters that the baby-boomers wrecked it ?.....Look at what the baby-boomers were born into!
    Why are we saying we do not want to pay for educating the young at tertiary level?That we will tax those who do well and get a degree?
    Why are we making it difficult for young go-getters to get into Britain?
    Why are we cutting our Universities and not investing in infrastructure?
    Why do we not want our old people to retire before they are seventy?

    Let's put some hope and generosity and some music and cheer back in this country.
    We owe less of our GDP than Europe or America.
    We are right slap bang in the middle of the world.
    We work harder than the Europeans and we look after our poor people better than the Americans.
    Let's quit the funeral march we have been on since Robert Peston spotted a queue of worried Northern Rock customers in the High Street in 2007.

    Onward-ho says LET'S GO SALSA!

  • Comment number 18.

    Morning Stephanie,
    well you haven't missed much on you Summer Break (what's that)?
    Just to bring you up to speed with developments while you were away:-
    Japan is in deep trouble over the strength of their YEN, many factories in Japan will have to close and production will be moved abroad (sounds familiar doesn't it)?
    Ireland is a basket case economically as far as I can see. They have gone through all of their austerity measures and are now in a worse state than when they started because nobody would quantify their toxic debts (sound familiar)?
    Germany have decided to introduce new austerity measures which will hurt the EU recovery plan.
    Oil continues its relentless rise in price totally decoupled from the reality of supply and demand -$150 a barrel here we come again.
    US has all the money men dashing back into cash because of their uncertainty about their economic recovery (more pain here I fear).
    The good old UK still hasn't woken up to the reality of what has happened to them over the last two years. If it doesn't affect individual earnings and spending then it doesn't exist.
    The pound has strengthened again because the markets like the sound of what the CONDEMs say, however actions will speak louder than words and I think that we are in for a rough four years next.

    I find it incredible that the BBC who sent hundreds of personnel to cover the world cup have only two economics commentators who are both allowed to vacation at the same time. That must make you both feel very special (perhaps time to put in for a raise)?

  • Comment number 19.

    If the problem is seen as a declining birth rate, perhaps we should have a benefit system which encourages large families. An economy based on an ever expanding population will have its own problems like energy, food, space, resources. It may be a solvable problem for the next couple of generations, but beyond that?

  • Comment number 20.

    Not mentioned here, but something that is and will become more of a drag on the US economy is obesity. One doctor on TV recently said that on current trends two thirds of the people of the US will be obese within 10 years.

    We are not talking about a bit plump. We are talking knee replacements, statins, diabetes, gastric banding, heart attacks, etc. Few of these people with huge health problems are going to be dynamic workers, but they are sure going to push up medical costs massively.

  • Comment number 21.

    19. At 07:34am on 02 Sep 2010, Boilerbill wrote:
    'If the problem is seen as a declining birth rate, perhaps we should have a benefit system which encourages large families. An economy based on an ever expanding population will have its own problems like energy, food, space, resources. It may be a solvable problem for the next couple of generations, but beyond that?'

    Agreed, and very well put.

  • Comment number 22.

    #13. richard bunning wrote:

    "BY[T?)W, we seem to have elected the Bankers' Party into power - how did that happen?"

    We/they get the government we/they pay for!??? They brought Thatcher then Major (a banker himself!) then Blair/Brown so is it any surprise that they have purchased Cameron's Tories and his fellow travellers. He who pays the piper get what he wants!

    I agree about the importance of trade however I do think that the Chinese/Indian/Brazilian situation is not impossible. The mains advantage that these rapidly growing manufacturers have is their huge home market not their fiddles exchange rates with which our bankers connive. Essentially most Chinese manufactures sell a bit abroad but the vast majority at home.

    We have a huge home market fifty percent larger than the USA that is Europe. The only problem is that our bankers refuse to let our traders and manufacturers take advantage of this huge home market. They do this fro the entirely selfish reason that to get rid of sterling and adopt the Euro will take away from them a huge and very profitable revenue stream they gain by 'stealing' money from UK people and business by the exchanging of currencies and fiddling the exchange rate in our home market. This created instability of costs and prices is hugely damaging to both UK people and businesses but as they (the bankers) have all the money they get policy that allows them to continue to enslave the British people - this must stop!

    However, I do not agree with your protectionist desires as history has shown us that economically this is both damaging and ultimately self defeating. I do agree with you that the market and market forces are not an answer in themselves.

  • Comment number 23.

    I love Stephanie Flanders' articles.

    The nations GDP has certainly some meaning for common security
    and collective bargain, but most of the times, it's a misleading
    indicator if not understood and used in it's spirit and context.

    Moving a level down, Per Capital GDP and it's growth rate seem better
    to give the individual prosperity view.

    Thus reconciling, the figure of merit takes a overall GDP and
    individual's purchasing power both in to account.

    Population's contraction is generally seen as an evil as it sounds
    and some times tends to disturb both the above factors.

    Next big thing in search of national strength is probably going to
    come from the people who manage contraction of people maintaining their
    individual's purchasing power and a strategic national GDP.

    and a step further, propagating the virtues of population contraction
    management is going to be a main stay subject in future decades and

    Experiments and experiences of both Japan and Germany are study worthy,
    but do not necessarily lead to helpful clues ...
    Both tend to export their way out and can not be a general solution.

    I think, Germany is doing exceedingly well, Britain is not at all too
    bad, India is thinking very hard, and China has a policy to live off
    of others' expenses.

    May be wrong, but this is what I see as a non-economist looking in to
    day-to-day life in Bharat (India).

  • Comment number 24.

    The post ignores one important thing:

    The US is bust wrt to its Social Security. It cannot pay it. The elderly population there will need to be fully supported by the income of its young today and tomorrow. The EU doesn't have anything like this problem.

  • Comment number 25.

    So, if we can solve everything by having a bigger fraction of the population of working age, we have to embrace our two most feared monsters: raise the pension age and immigration.

  • Comment number 26.

    A timely reminder of the great debt we all owe to parents.

    Without children they'll be no future. Without children they'll be no workers to produce national wealth from which pensioners can claim their pensions of all types. Without parents' investments in encouraging their children, school learning will be largely ineffective.
    Parents' investments in their children provides a future for all of us, and for our country.
    US Parents invest more in their children than either European or Japanese parents. Which is why the future's brighter in the USA than Europe. Many Chinese parents are prohibited from investing in enough children. Failure to invest in children - and in their education - is strategically unsound. It means that there will be an increasing dependency ratio of more and more pensioners claiming a increasing share of future outputs. With no matching inputs.
    Suppose the dependency ratio - driven by current low birth rates - becomes intolerable for future workers in Europe and Japan, and they rebel against those large and growing claims on their incomes from pensioners?
    Sound and far-sighted governance would urge fulsome assistance for parents' investments in our future generations.

    We should take note of the benefits to the US of its growing population. We should be pleased by the rise in the UK birthrate since 2001 and hope to encourage more.

  • Comment number 27.

    "Summer break"=month off?

    Only at the bloated BBC,Troughminster,and the rest of the "public" sector.I`m damn glad I don`t pay the license tax.

    I see you`re still trying to sell the green shoots idea,simply laughable.

  • Comment number 28.

    This "analysis" isn`t worth the electrons flowing through my monitor!

  • Comment number 29.

    Hey Stephanie,why not do an economic analysis of Detroit,the former motor city.

    Detroit had lots of immigration and a socialist tyranny,just like Air Strip One.

    Here`s a video to get you started:

  • Comment number 30.

    Have to agree, it is weak tosh,
    "It all comes down to demographics - or people power."
    Concluded by
    "Demographics aren't everything"

    I demand 7 minutes of my life back and will be billing the BBC accordingly.

  • Comment number 31.

    Some people on this blog are worried about the social welfare costs in the USA saying our problem is not comparable. Remember Katrina anyone? the USA is happy to cull its poor and minorities rather than spend money when called upon, whereas in Greece they riot when non existent pensioners have their salaries stopped. Europe does not have the mindset to let the "unproductive" be cast aside like chaff.As economic conditions dictate, the USA will ignore their own social needs. The only cost to their economy will be manning the walls of their gated settlements.

  • Comment number 32.


    Not your best piece - why don't you talk about something which will draw in the crowds....

    The OMEN Stephanie, talk about the Omen

    Nobody wants to hear about the fantasy of recovery - we just want to know when the next body blow is coming and what to do about it when it does.

  • Comment number 33.

    22. Getting rid of the governments sovereign currency issuing powers monopoly like the Greeks etc have would be a disaster.

    What's needed is a Job Guarantee of work to anyone at minimum wage, say 12k a year for 4m un/deremployed people. Given taxes and welfare costs, the economic cost would be around 3% of national income/produce. Simply create the money, no need to borrow, given the output gap of unused labour and capital this would have minimal inflation effects, maybe a one-off decrease in trade balance and sterling value. This would be a firm floor for demand and business confidence.

    Unless the government steps in to 'fund' people's saving/de-leveraging, we are headed for a fall in demand/income aka 'double-dip' and we're not talking ice creams as in Merle Hazzard's country satirical song on youtube.

  • Comment number 34.

    It's very easy to be rude to someone when you're sitting at your computer. It's not grown up to post things you wouldn't say to someone face to face. If you do talk to people face to face like this you are probably "cruising for a bruising".

  • Comment number 35.

    The biggest improvement to the lot of the average englishman came about after the Black Death. When the land owners no longer had all the labour to call on they had to pay the remaining people well (even if they did have to hide the payments). Large populations benefit those at the top, thats why immigration has been encouraged.

  • Comment number 36.

    The above graph shows that since the crisis the relationship between EU and US productivity does not involve a US->EU causal lag.

    In the past, some decline in US GDP might have been correlated well with decline in USD index. Since the crisis, however, USD remains strong because other investments and willingness to continue with dollar debt is weak. 'Cash' is being held. So now GDP in the US is not tied to strength of the dollar, and the impact thus on EU exports is mild. The relative strength of the dollar is associated with Asian purchases of EU exports, as Asia itself has high dollar reserves.

    The relationship between oil and the USD is also an interesting topic...eventually the pressure can be strong enough to decouple the two, and then the world will witness a shocking change.

  • Comment number 37.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 38.

    #22 JFH,

    "However, I do not agree with your protectionist desires as history has shown us that economically this is both damaging and ultimately self defeating. I do agree with you that the market and market forces are not an answer in themselves."

    John, I have to challenge you to provide evidence for your contention that protectionist measures have been proved to be both damaging and self-defeating. It sounds very much like the often stated falsehood that US protectionism during the Great Depression deepened and extended that depression or the unsubsubstantiated claim by some former (mostly Tory supporting) blogers that it "caused war".

    Of itself, protectionism in the form of tarrifs and quotas would not solve Europe's economic problems. Only as part of a far wider set of socio/economic changes could they prove beneficial in the short to medium term.

    My great fear is that, should the US economy stall badly or even go into acclerated reverse, then they will take emergency protectionist measures and Europe will be forced to follow suit without having laid the plans for what to do about the shape and direction of the European economy.

    The counter-balancing fear is that Europe will try and 'play the game' whilst hiding their potectionism behind quasi 'green' fiscal policies. This would mean that Europe loses the potential to regenerate and change the shape of viable sustainable economics.

  • Comment number 39.

    16. At 11:15pm on 01 Sep 2010, TheCynicalSasquatch wrote:
    How's about commenting on the real world Steph? venture out of the City of London's wine bars and your docklands combo and take a look around any normal high st. What do you see? Whats missing?

    Somewhat harsh.. but a good idea

  • Comment number 40.

    I'm with 16 & 32.

    What's with this petty drivel, Stephanie?

    The Western World is bankrupt and no amount of sticky plaster is going to change that. World GDP is around one tenth of World Debt. Turning this around simply can't be done. Ask a child.

    Isn't it about time we started the serious debate as to what we are going to do after the house of (indebted) cards comes crashing down?

    All this wittering on is just a waste of oxygen - and boring.

  • Comment number 41.

    Dear Everyone - WOTW link to Hindenburg Omen suggests a NYSE crash is possible.

    Hyperinflation is also possible.

    Stagflation is also possible.

    Currency Devaluation is also possible.

    Gold has risen to the extent it is hard to believe it is not near the top of its price.

    It is possible that the whole system of money our lives are based on today is close to collapse.

    If you were lucky enough to have £500,000 what would you do with it?

  • Comment number 42.

    41. At 4:06pm on 02 Sep 2010, GRIMUPNORTH77 wrote:

    'If you were lucky enough to have £500,000 what would you do with it?'


    Become a banker and donate it to the Tory Party!?!

  • Comment number 43.

    41. At 4:06pm on 02 Sep 2010, GRIMUPNORTH77 wrote:
    If you were lucky enough to have £500,000 what would you do with it?

    Buy a house up North with about 40 acres and an AKA

  • Comment number 44.

    Sitting in my company I have, its taking many years of graft to get a pot put away (26 to be precise) and without the cash reserve I would have gone out of business at least 18mths ago because i've worked through a fair bit to date and quite frankly would not stand another downturn.
    What to do with it? I'm dipping into gold forthwith after months of hesitation while I've watched it rise, I'm convinced enough its not a bubble and in fact believe its being manipulated to the downside as a mass run to gold would be disaster for the share/bond markets, but one day the price will break out and keep going. The only question I have is if it will be shares/physical gold/ETF's. Physical seems the way to go just want to be sure I'm not being sold a pup quality wise.

  • Comment number 45.

    Sorry Stephanie, but I just do see that your Chart 1 shows a lag. What I might concede, pending a proper statistical analysis (which I'll do if you make it worthwhile), is that in the 1970s and 1980s we lagged the US. Better and faster flows of information today make the forward projection of the lag phenomena pretty speculative, I'd say.

  • Comment number 46.

    44. At 5:22pm on 02 Sep 2010, dudeHangingon

    Dude I've never understood this Gold thing.
    Its basically a shiny not very useful metal. OK it's rare but why would you risk your pot on it. Surely property or Land is a better bet and has a use.

  • Comment number 47.

    Stephanie, since you are writing for the British Broadcasting Corporation, one would expect you to use the 'British English' spelling for words rather than 'American English' ones. I make this point because you write that "Europe's population is aging" when, in fact, it is "ageing".

  • Comment number 48.

    Hope you enjoyed your break.
    I'd be interested to see the charts if you changed the age range of working agein Fig 2 from 15-64 to 18-67 or even 18-72(as has been discussed whilst you were on holiday.

  • Comment number 49.

    47. At 7:52pm on 02 Sep 2010, Mmmmm wrote:
    Stephanie, since you are writing for the British Broadcasting Corporation, one would expect you to use the 'British English' spelling for words rather than 'American English' ones. I make this point because you write that "Europe's population is aging" when, in fact, it is "ageing".
    That's Harvard for you.....

  • Comment number 50.

    #38. FDD

    Protectionism has negative consequences for everyone, examined:

    Let us look at agricultural support in the EU and the USA and the effects on the rest of the World and the effects in the USA and the EU.

    in summary both the EU and the USA subsidise farming and protect their farmers fro very much the same political reasons (but that is not important here). Now inside the protected areas prices are held artificiality high and large production surpluses result which are then dumped in third markets, at subsidised prices, so depressing the price in these markets and destroying local production.

    I contend that this sufficiently demonstrates the damaging effects of protectionism. So I am against it. I could have just as easily looked at the production of aircraft, or weapons etc. etc. etc..

  • Comment number 51.

    #49. Kit Green #47. Mmmmm

    précis: Bickering about English as she should be written...

    English may be a delightfully flexible language from Pidgin to Oxford but we still can detect the same meaning in both 'big man belong Mrs Queen' and the Duke of Edinburgh! Only when the meaning becomes obscure or opaque does it actually matter - this is not an English Language preservation blog. We are talking about the trivial matter of economics! I also contend that English does not need, and should avoid at all costs, an Académie Anglaise.

  • Comment number 52.

    Maybe not strictly relevant to the USA V EUROPE question ,I have been asking myself this question.........

    While we are talking about savings, how much have we spent,in UK V USA V EUROPE, wasted really, to make the savings, in public expenditure?

    Do you get it?

    Think of it this way with eg a department having to trim its budget and axe its staff.

    So it looks at first in first out...... how much did the department spend on training and waiting for these members of staff to get up to speed, and how much will it spend when it trains newbies and waits for them to get up to speed ?

    Then it looks at the oldies, on high wages, possibly nearing retirement.
    Now the settlement the public servant gets is partly made up by the compensation element of so many weeks pay for so many years of service, then it adds on added years and extra amounts to the lump sum.This is done so that the exiting civil servant thinks, with the lump sum, the added years of service, the payoff package ,it is actually not so bad retiring as they will not have to pay superann, won't have to commute, can do something else and get paid some pension for doing no public service work at all.
    The fact that the department will lose its wiset, quickest, savviest and most efficient members of staff is another cost.

    And on average it costs 3 years pay to make a civl servant redundant, which will result in 2 year's pay being saved over the five years.

    Before cuts....5 years pay buys 5 years service.
    With cuts, 3 years pay buys no service.

    And in order to fund these expensive cuts to generate 2 years pay savings, often the agency has to borrow the money to fund the severance, and pay interest on the cost of this, funded by the wage savings.

    Or an IT project being shelved when 60% of the money has been spent, in order to save 40% ...... eg the NHS IT project where £8Bln was saved by writing off the 12Bln that had been spent so far leaving us with no IT project, and the sickening feeling tat when we realise it is daft to not develop our IT will cost £40bln to do it next time.

    So the efficiency of cutting public spending is really not that efficient, because we have to spend a heck of a lot to make that saving,at the very time we need the money, when we know full well that in 3-5 years the economic cycle will have changed and recruitment will have restarted.

    Might it be cheaper not to axe staff?

    Is this not why the last government was not keen on cutting like this, but was instead shelving projects and letting time-expired contracts come to a cheap end rather than an expensive premature end?

    If there is only 40% efficiency in making a cut, without even counting the cost of the loss of the value the service provided,is it really worth doing?

    Is it not like chopping your arm off for firewood when maybe we just need to hang on in there?

    We all know we need to plan our roads, schools, railway, airport, and telecoms infrastructures , but there is also our social infrastructure
    ......... and it has a value too.

    Is it not maybe about time to bring back the dreaded 5,10 and 20 year Plans, so much derided, so that we can think about things longer away than the next by-election?

  • Comment number 53.

    #50 JFH

    I don't think that your point is well made at all. As you well know the argument for subsidy of argriculture has far more than mere political reasons. The lesson of both WW1&2 for the UK was that when the nation cannot feed itself then it is at a major strategic dissadvantage. Now via the extreemes of globalisation we are as vunerable as we were before if not more so.

    The biggest problem that we face is not essentially one of debt - that is merely a symptom. If we in Europe are to enjoy a secure economic future we need to employ our true resources - our people. Unemployment is NOT a reasonable price to pay. In our globalised free market world the only way of seuring that future is via protectionism.

    I will point out that in addition to protectionism, we need to make wholesale changes to our economic processes. We need to put money back into its place, we need to restore the relationship between wealth and value, we need to energise the sustainable economic processes.

  • Comment number 54.

    A couple of obvious points spring to my mind on the implications of this blog from Stephanie:

    1) nations continually having more kids to pay for the elderly and generate economic growth is surely a vicious circle and subsequent recipe for disaster. Over population and living beyond sustainability is the elephant in the room of economics and general quality of our future lifestyle that no one seems to even realize is there. We are over-competing ourselves to death literally. Is this progress or regress?

    2) If we are healthy and living now to 80+ then we need to work until we can afford to retire rather than assume that retirement age stays at 65 the same age it was when life expectancy was just 70 or so. Not necessarily in the same line of work we did at age thirty for sure but what a waste of talent and invaluable experience to be idle for twenty years or more. This addresses the economically active to inactive ratio logically and sustainably.

    However, as technology driven efficiency inevitably means less work needs to be done by people, this fact combined with an ever growing number of people in the world can only mean an economic restructuring is inevitable to avoid social breakdown or the death of the democratic freedoms we take for granted.

  • Comment number 55.

    #53. foredeckdave wrote:

    More on pros and cons of protectionism:

    FDD I disagree with you. The ability to feed oneself in times of war is not related to protectionism at all. Let us look at Agricultural subsidy. The effect is that farmers farm subsidies not crops - in wider terms what this means is that protectionist tariff barriers causes economic actors to 'farm' the tariff barrier. What this does is to stop the development of greater economic efficiency and to maintain higher local prices. When the tariff barrier is based on production volumes the result is surpluses that have to be dumped at a loss on global markets as the further cost of the local market.

    As to unemployment:

    This is never a price worth paying. We need to ensure that the maximum number of people are productively employed for the benefit of not only the people, but of the country. We need to ensure that we are as competitive as possible on the global market whilst at he same time gaining the maximum advantage from our home market. To ensure a strong competitive position local prices need to be internationally competitive. [I am here referring to property and house prices as you might expect!]

    There is a nonsense spouted by xenophobe politicians that this says that we can't join the Euro - this is simply nonsense. To accept this as common-sense leave us totally enthral to the bankers - and look where that has got us! Today (on R4 Today) I heard Ed. Balls saying this - what a plonker. He stated that by being outside the Euro we could gain competitiveness without deflation - what utter rubbish - what the blazes does he think that currency devaluation is apart from thinly disguised deflation. We are in just a bad as an economic fix as Spain etc. all of us have to deflate out asset prices to regain a competitive position.

    We need competitive pay and asset prices (and not protection) to regain more employment. We also need to have a large home market so that we get the price and cost stability of the largest possible home market. Yet this is precisely what the bankers are striving to avoid for their own selfish reasons. Chinese companies mainly benefit from a billion Chinese as a home market when are in theory part of the EU, but we suffer from the economic inefficiencies and costs of treating is as an export market, by refusing to join the Euro - this is shooting our business in the head!

    So for minimum unemployment we need to deflate asset prices and join the Euro - juggling with a floating exchange rate just benefits the bankers and is rather like accepting that Harold Wilson was right when he gave that memorable (and wrong) speech on the pound in your pocket in 1967.

    We have to accept that a earnings to house price ratio of 12 (as it is in London at present) is totally unsustainable and is the primary cause of our economic malaise. The hugely damaging consequences of not being able to get a foot on the housing ladder until you are 52 years old (for men) and 59 for women [yesterday's news stories] is socially and economically insanity and corrosive. This is the direct fault of the Bank of England (Mervyn King and his predecessor) and his banking buddies - that have killed the golden goose! The people cannot be milked any longer. There is no more blood extractable from the stone. They have bled the Nation dry! Their 'secured' asset back loans are not worth the paper they are written on as the assets are [in London] over 3 times over priced. That is house prices need to fall by 70%!!! to get back to rational long term price levels - [from 1 - 3.5/12] That should shock even a banker and terrify all politicians! But this shows, yet again, just how much excess debt has been created [under the noses of the Bank of England] and just how worthless it really is and how much it has to be deflated before we can regain a competitive global position.!

  • Comment number 56.

    I think we should make self replicating robots that convert the Sahara into a vast solar power plant.

    We should also terraform Mars and turn it into a vast playground of luxury accomodation.

    When we have abundant energy and space we should then just write all debt off, make all debt auto-expiring, and reorganise society such that money becomes much less significant as a method of rationing limited resources.

  • Comment number 57.

    Thank God for the Sage of Cromer - whoever he/she is. I'm going to go an live in Norfolk!

    Why do we STILL think that MORE consumption is the answer. The US having a growing workforce is not going to help the situation. We have a dysfunctional economic system that demands minimum costs (human input) in return for maximum output. Making ever growing numbers of people work will just require totally unsustainable levels of input and output that ultimately comes from natural resources. Which we are supposed to be conserving.


  • Comment number 58.

    4. At 09:55am on 03 Sep 2010, Sage_of_Cromerarrh wrote: technology driven efficiency inevitably means less work needs to be done by people, this fact combined with an ever growing number of people in the world can only mean an economic restructuring is inevitable
    Let's start by banning self checkouts in supermarkets. What more obvious sign is there in our daily lives of corporations lack of humanity in local employment.
    I never use a self checkout and when a staff member invites me to use one I always politely explain that they are just wrong.

  • Comment number 59.

    SMART MONEY! Is that the trillions stuffed in off-shore accounts, that conveniently avoided the worst of the recession.................

  • Comment number 60.

    and see 'What is the problem' (May 2010 - pdf document).

    To quote from the Migration Watch Briefing Paper:-

    "Clearly some migrants bring economic benefit to the UK but, taken as a whole, what they add to production is counter balanced by their addition to the population. The only major inquiry ever conducted in the UK was carried out by the Economic Affairs Committee of the House of Lords in 2007/08. In April 2008 they reported that "We have found no evidence for the argument, made by the government, business and many others, that net immigration - immigration minus emigration - generates significant economic benefits for the existing UK population." As regards the contribution of migrants to the Exchequer, they concluded that "The overall fiscal impact of immigration is likely to be small, though this masks significant variations across different immigrant groups." See


    I think that most broad international comparisons on 'demographics' are largely meaningless when some countries have populations levels measured in billions compared with e.g. UK population 62 million + and the resource base and land areas of the various countries also vary considerably.

    Population create vastly different conditions between countries with a massive number of comparison and connotations and perspectives possible. But if a country is 'full' in demographic terms like e.g. the UK ... and has 10-15 million people needing a real job of some sort ... then it really is full and different radical policies are needed.

    The MigrationWatch reference to the HoL Economic Affiars Committee Report seems to indicate that education and training are of vital importance to a nation's economy ... if the political/moral/ethical view is also accepted that training one's own citizens and giving them first access to employment in their own country comes before training immigrants and giving them jobs over native born citizens.

    Demographics is a political questions besides being an economic question - some countries are relatively massive on land area, can achieve massive economies of scale and have massive natural resources and have room to grow and are not over-crowded and some are not.

    It should be fairly easy to pick winners and losers based on potential for growth .... but in reality I don't think that the 'smart money' is returning to the USA ... it is already there!

    'Efficient Demographics' require planning of population, resources, investment etc and if and when the UK gets a government that is capable of planning and co-ordinatinga nd organising this properly, the standard of living for the majority of the UK population might stabilise or even improve marginally as opposed to the current slide in living standards for many British people.

    What I think is more meaningful in terms of 'demographics' is the proportion of the working age population that is 'inactive' and/or earning less than the national average wage/salary ... and then make international comparisons on 'demographics' ... please; I can't wait!

    Where would Britain be under such an analysis?

    Do we have ten-fifteen million people in this country that the UK government 'wishes to be somewhere else'?

    Succesive UK governments do nothing about the pig picture problem i.e. the 'rogue elephant in the room' ... effective creation of ordinary,
    accessible and sustainable 'real jobs' for 10-15 million British people, to enable them to live a reasonable lifestyle in a country with high levels of imports/inflation and a wicked high cost of living..

    ... Deafening silence ... only prattle!

  • Comment number 61.

    You make reference to the possible significance of GDP per head using the USA as an example. It shouldn't be difficult to make use of population projections to get to relative GDP per head figures for each country. We are told for example that in x years time we will have a larger GDP than Germany but how will we compare on a per head basis. That might be more significant for some of us.

  • Comment number 62.


    Thank you both for that intelligent exchange.

    With regard to protectionism the argument really needs to start from the point that an economic model that depends on the UK borrowing money from China in order to buy consumer goods made in China's factories is just not sustainable. This is where we currently find ourselves.

    Whilst brand owners and retailers can derive profits from this arrangement it does nothing to develop broader employment within the UK and Europe from which manufacturing jobs and the economic growth such jobs would bring to the wider domestic economy.

    The argument that a degree of protectionism would encourage the creation of such jobs is a valid one. The argument that by joining the Euro we would be able to participate more actively within a broader domestic economy is also a valid one. So these two arguments are not necessarily contradictory.

    Now I know the European Commission is actively engaged in monitoring unfair competition from China and other manufacturing nations. It is part of the framework within which I have to work. I think the EC could get a bit more rough in this activity just like the Americans, the Indians and the Chinese to name but a few.

    However, I think we can all be in total agreement that the priority is the restructuring of our economy towards value adding employment. This cannot happen under the prevailing arrangements. My judgement as to the competence of the Coalition will be based on how it tackles this issue. For the moment I will try to remain hopeful.

  • Comment number 63.

    a1canary you are dead right that ever more consumption is definitely not the answer.

    We are also deluding ourselves if we think that under current world economic and political systems we are going to be able to "create" value added manufacturing type jobs either by being miraculously competitive or by protectionism.

    Labour and capital costs in China, India, Korea, Thailand, Malaysia, etcc are an order of magnitude (10 times) cheaper than they are in the UK. They are just as clever and currently much more aspirational and hard working than we are, so to think we can have all the nice high value added jobs because we're superior to them is just delusional (and frankly racist to boot).

    There has been no net private sector growth of jobs in this country now for a generation or more, and certainly not in any manufacturing or technical industry. We have relied on public sector job growth funded by taxes from a bubble financial sector and crazy debt (public and private). I say crazy because it has been used for consumption not investment and is therefore in opposition to Gordon's key fiscal rule.

    However, things are not all doom and gloom. The average person now has real wealth beyond the wildest dreams of even the richest in society just a few years ago. For example: computers, air travel, TV, the internet, NHS, telephone etc.

    It's all about quality not quantity. If we take steps to concentrate on improving our quality of life rather than our perceived net worth and rising levels of consumption both as individuals and as a nation we will make sustainable progress.

    Once again over population needs to be addressed as the key world issue. The more humanity there is the less each individual becomes worth, to paraphrase Al Gore: this is an uncomfortable but inescapable truth.

  • Comment number 64.

    55 J-F-H wrote about the Euro:
    "There is a nonsense spouted by xenophobe politicians that this says that we can't join the Euro - this is simply nonsense."

    JFH, of course we can join the Euro. But would the Eurozone want us and is it a good idea to join? To what advantage? Let me express the view that amongst a lot of other factors two stand out:
    1. The Euro is not properly set up. All successful monetary unions were preceded by political unions. The Eurozone have done it the other way. That's why Greece is such a problem.
    2. Unified currencies should have a Reserve Bank established with large monetary reserves and control over money supply. The ECB is not that animal. The Eurozone had to cobble together a rescue fund for the PIIGS because there are no reserves.

    "To accept this as common-sense leave us totally enthral to the bankers - and look where that has got us!"

    From my observations of the Eurozone crisis, the bankers there are just as culpable as our motley crew who needed bailing out. In fact they are probably worse off in that German and French are hugely exposed to the PIIGS.

    "Today (on R4 Today) I heard Ed. Balls saying this - what a plonker. He stated that by being outside the Euro we could gain competitiveness without deflation - what utter rubbish - what the blazes does he think that currency devaluation is apart from thinly disguised deflation."

    I agree on your view of Ed Balls but I don't think you are correct about devaluation. It isn't necessarily deflationary if the internal money supply and/or interest rates are reduced to the levels we have seen lately. It needs deflationary policies by the incumbent Government to choke off demand in the economy. I don't think QE ws deflationary? And anyway devaluation has given our industry, such as it is, a boost.

    "We are in just a bad as an economic fix as Spain etc. all of us have to deflate out asset prices to regain a competitive position."

    Here I partly agree with you.We are in a fix like Spain and devaluing our currency means our assets become cheaper to foreigners and so they buy them and we see no reduction in prices (simplified view, I admit.

    But overall the UK entering the Euro, particularly at this stage would be a complete disaster. Not all the problems are resolved in the Eurozone and if more of the PIIGS need bailing out, then who do you think would have to pay for it? Germany, France and...yes.. UK!

  • Comment number 65.

    "More workers", per se, doesn't mean "more production". The US economy may have a growing number of able-bodied people, but it may well not have the needed energy, raw materials and capital to make them productive. Capital endowment per worker is an important factor in labor productivity. The article's logic is lame.

  • Comment number 66.

    Well Stephanie, if you consider any money going into the USA to be "smart", then words fail me. The USA is a money pit, you can invest as much as you like, it will all be sucked in to their degenerate consumer based economy, and lost forever. Like all empires in their last phase, it is only foreign wars that are keeping their economy afloat. What do Amricans make, what do they sell, how do they live? You can't keep 300 million people going on the back of Boeing and Disney. Look at US debt levels- how is that ever going to be repaid? Short of massive devaluation of the dollar, it never can be. So any investment in the dollar zone is money down the pan. You can have as many people as you like of working age. If there is nothing productive for them to do, then they end up as just another burden on the economy.

  • Comment number 67.

    The use of GDP as a measure of anything, when expressed in fiat currency, is pointless. UK would never declare bankruptcy, merely print its way out of the problem. Given that we are heading for insolvency -

    - it would seem to me that the price of gold is still in the bull phase. In terms of measuring our wealth gold is also a very interesting benchmark - look at the average house price in terms of ounces of gold over the past 3 years.

    The magic figure is 100 ounces - I am not buying till then.

    "gold is money an nothing else" JP Morgan

    Money printing is very dangerous, even when you call it quantitative easing. I have just finished "when money dies" by Adam Fergusson about the Weimar hyperinflation. When I read about Modern Monetary Theory and it's blase approach to money creation, I think that as a species we have learnt nothing.

  • Comment number 68.

    If my experience of the car industry is anything to go by manufacturing is picking up. I have just ordered a new car as savings rates are appalling and I thought I would save on the vat. It turns out I am not alone and the delivery date is much further away than I thought it would be as orders are up. My daughter's partner is a car designer and a large american car company has just offered him and a significant number of other foreign car designers permanent jobs in the States. He has been working on a temporary contract in a Midlands car company for the last year since he graduated.

    With regards to post #8 about 1 in 6 employees in Cornwall Council going under the latest cuts maybe this would not be the case if they exercised some pay restraint at the top. The head received £400k last year in pay and other benefits. Public Sector organisations need to be sensible in where cuts are made. If past history is anything to go by this will not happen. £8m was spent on a brand new police station in Bodmin and it has no holding cells. The old one could just have been modernised at a fraction of the price. The new fire control centre at Taunton has been sitting empty for the last three years because the computers don't work. Criminal waste of money!!

  • Comment number 69.

    There is no need to worry about weimarsbar inflation providing the QE stuff does not find its way into the hands of people who part with it in poundland

    The QE ROLLER COASTERS will direct their pennies pump towards the bankers to enhance their waning bonus [due to low interest ]by reinflating the bouncy castle capital values in the fantasy island qeonthem world of banking .

  • Comment number 70.

    At 11:06am on 02 Sep 2010, WolfiePeters wrote:
    So, if we can solve everything by having a bigger fraction of the population of working age, we have to embrace our two most feared monsters: raise the pension age and immigration.


    Then what happens when the immigrants get old? Sounds like an unsustainable pyramind scheme.

  • Comment number 71.

    70. At 07:23am on 04 Sep 2010, Political_Incorrect wrote:

    At 11:06am on 02 Sep 2010, WolfiePeters wrote:

    Then what happens when the immigrants get old? Sounds like an unsustainable pyramind scheme.


    At least in the case of the eggyption pyramid scheme the underlying asset remains ergo a single room apartment with a small roof window to be occupied on a timeshare basis by the investall virgins that also wished to reach for the stars [yes yes yes]before their next monthly wreckovary thus insuring the steady suply of sillycon tutts in denile valley refusing to pay the true rate for womb service.

  • Comment number 72.

    What do you mean by "smart money"? Oh! the one which made the entire global (ok, apart from the likes of India, China) financial system collapse?!

    Well, in that case it better go back to the US as there is no place for such "smart money" or its accompanying "financial innovation" in proper, real, tangible economies.

  • Comment number 73.

    67. At 9:11pm on 03 Sep 2010, truths33k3r wrote:

    "gold is money an nothing else" JP Morgan

    Money printing is very dangerous, even when you call it quantitative easing. I have just finished "when money dies" by Adam Fergusson about the Weimar hyperinflation. When I read about Modern Monetary Theory and it's blase approach to money creation, I think that as a species we have learnt nothing.
    Have a read of the Dying of Money by Jens O Parson, its also a great read about this issue. Your right nothing seems to have been learnt from the lessons of the past, especially at the Federal Reserve.


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