Tuesday, 25 November 2008

Mr Darling to the rescue

Britain it seems to me, has changed radically in the last few days.  We are no longer a free market economy - the package of measures put forward by Mr Darling mean, in effect, that Britain has become a command economy.   It is a bit ramshackle and ad hoc as command economies go.  We haven't become the Soviet Union overnight.  But we quite clearly aren't leaving things to the invisible hand of the market either.

Reading between the lines I think I can see what is being attempted.  At the height of the property boom about 8% of consumer spending was funded by what was called Mortgage Equity Withdrawl (MEW), i.e., borrowing against the increased equity in your property.  This source of new spending has, to say the least, become untenable.  The chancellor's proposals in the short run seem to amount to replacing this missing spending with government spending based on borrowing.

In so far as it goes, this sort of makes sense.  The shock of a sudden removal of spending would benefit nobody.  We need to get out of the debt dead-end we are in, but going cold turkey isn't the best strategy. 

Will it work?  I hope so, although there is a lot that can go wrong.  And I really don't think that in reality there was much alternative.  The big question is whether it is part of a sustained effort to redirect us to an economy based on generating real value.  I will wait and see.

Tuesday, 18 November 2008

Bail outs for car giants

The big news today is the big American car giants are tapping the US government for loans. These are big companies with big problems and they need big money. I forget the numbers even though I listened to it with great attention on the radio only this morning. But frankly, once it gets beyond billions it doesn't really register anyway. It is worth taking a step back to think about how these companies got into this state. American industrial strength was not the result of a quirk of history or uniquely favourable natural conditions on the North American continent. It goes back to the country's puritan roots.

From the days of its first settlement the Americans have been uniquely well organised, success orientated and probably most important of all hard working. The great corporations of the twentieth century that made the country great and bestrode the globe like colossi were above all great feats of management and organisation. Where did it go wrong? I think it was when they lost sight of the meaning of what the organisations were actually doing. Managers who understood the products were replaced with management scientists from the big universities. The top leaders became financial whizzes who understood money but not the actual products they were making. At first it didn't matter because the financiers understood the balance sheets. In fact they seemed, on paper, to be doing an even better job.

They started to become reliant on borrowed money. It went fine when things were going well in the economy. But it doesn't look so good when things turn down. Once again, debt is behind the destruction of wealth. Not maybe on the scale of the banking crisis, but the same principle is in play. Fortunately there is probably something to be salvaged from the wreck. There are still car plants, engineers and a skilled pool of workers that can be turned to some good purpose. It will probably turn out to be what you would least expect. But Ford and GM as organisations? They have had a great past but it is hard to see what keeping them alive is achieving.

If I were the next US president I would let them go as quickly as I could. 

Sunday, 16 November 2008

Writing a book based on a website

My main blog is Colin's Beauty Pages, a blog devoted to the science of beauty and its practical applications. I want to reproduce some of the key content as an e-book. Having a full time job, a sideline business and a half dozen blogs to maintain I have to work out a way of keeping this project going in very very small chunks. I find I can usually manage to scrape an odd 15 minutes together at some point most days, so ideally I want to be able to fit this project into 15 minute chunks.

I don't know how it would work for other people, but I find that I can often get a blog post done in 15 minutes. Sometimes I bite off more than I can chew, and I have to spread a post over several 15 minute sessions. A 15 minute session to tart up and extend an existing blog post also works well.

So my challenge is to get writing a book into that format. The trick to it seems to be to set things up so you can sit down and start working straight away on what you want to achieve - the organisation has to be pretty fluid. Blogging fits in fine with this because it is so immediate - and a short blog post is worth doing.

Can I make it work for a much bigger project. The key will be getting the organisation right. I will try the following approach.

Set up the chapters on Scribd.

Set up the drafts of the chapter as drafts on Ecto - publish them when they are sort of readable and then transfer to Scribd.

Keep a master file of my progress on this blog. Nobody ever reads this blog so that shouldn't annoy anyone, but if they do I will have links to the Scribd documents to look at if they are interested. I know that statisitically speaking it is unlikely that many people will stumble across this blog as I make no effort whatever to promote it and it doesn't have any keywords. But the fact that someone might look at it is quite a good discipline - it forces me to write in a way that is intelligible, or at least intended to be, for the sake of my theoretical but probably non-existent readers.

Saturday, 1 November 2008

How to cope with the Credit Crunch

Some parts of the media seem to be treating the current financial turmoil, the credit crunch, as if it is some kind of wierd abnormal happening that we don't understand and which will eventually be solved and we will all go back to normal.

I think this is completely the wrong way to look at it. I think the abnormal period has been the last seventy years. What is happening is that we are now returning to normal. Cheap fuel. cheap credit and widespread borrowing by governments, companies and individuals are not coming back. The World has changed and we need to change with it. There are some people suggesting we are heading towards deflation. I don't know enough to offer an opinion on how likely this is, except to say that when it comes to houses we are already seeing rapidly falling prices. If falling prices spreads from the housing market to the general economy then we are looking at huge problems, and problems that we are not used to. Saving up for something rather than buying it becomes the best strategy. The longer you save the lower the price and the more interest you receive. Of course if everyone does this then lots of jobs get lost. If you are one of the unlucky ones, you will find that losing your job in a deflationary world is no picnic. Prices are falling including the price of labour, i.e., your wages. You are unlikely to get a new job that pays as well as your last one, As unemployment mounts you will in any case be lucky to get a job at all. The good news is that your savings will last longer. The bad news is that if you need to sell something to raise some cash, you won't get much for it.

Of course there are other folks who say we are heading for rampant inflation as spent out governments cheerfully turn on the money printing presses to inflate away the value of their huge debts.

I am not an economist and I can't judge which scenario is more likely. Indeed I can imagine one following the other in baffling succession derailing the most conservative of personal financial policies. Got savings? Inflation can wipe them out. Got assets? Watch deflation turn them into illiquid liabilities.

In other words, I am saying that I think that the economic system has become so unstable that there is no way to guarantee a comfortable future simply by saving/spending/investing - though I dare say if you are very wealthy indeed you will probably be all right.

Is this a council of despair?  I really don't think so.  I think it is much more a call to look at what is really important.  Money in the bank is handy and a nice house is great, but at the end of the day what really makes us happy?  I think it is how we get on with people around us and how we feel about what we are doing.  If you lived in a small community where you knew everyone, would you really want to be the person who worked out how to skive while everyone else did all the work?  I know I wouldn't.  And I know what I would think about the people who dodged their share.  Of course, we are human and know that some people are brighter or stronger or just have more energy and imagination than others.  Of course these people are going to get more out of life - but they probably put more into it.

I think the way to live is to behave as if you live in a village and you want to be a good neighbour and to pull your weight in the community.  This means doing what you can to help other people.  It means keeping your skills and abilities at their highest level.  We might not live in small communities any more but we can still behave as if we do.  I think this is probably the best bet for our mental health, and it is probably the best option for our general well being as well.  We can't get out of the fact that we live in a world dominated by money - but that doesn't mean that we ourselves have to be dominated by money.   And when you look at what the world of money is likely to do to us over the next few years that may well be just as well.