Blog Archive -December 2013

29th December 2013

Why Christmas is not that bad

The New Republic has republished 'Why I Hate Christmas -The Grinch has it right' by James S. Henry. First published in 1990 he makes an economic argument against Christmas. In the spirit of a modern day scrooge he provides a litany of complaints, some of which are contradictory. There may be some sense in curbing the excesses but what has provoked this response are his comments on the exchange of presents. Or as he puts it a throwback to the barter economy 'in which people have to match other people's wants to their offerings. Of course, money was invented precisely to solve this "double coincidence of wants" problem.' and if we were to monetise the process we would show it for the pointless exercise it is. At a superficial level there is a truth to this but it also shows a misunderstanding of basic economics. The difference between exchanging physical gifts and money is that the goods are real wealth and cash is just a token for it. The goods may be tat but there will have been a number of other transactions creating employment and income that can used to buy more useful wealth, in effect a redistribution of money. All these transactions would be lost if we just exchanged cheques that sat within a savings account. This argument is a microcosm for the wider economic understanding where the gifts represent the dealings of real wealth in the real economy and the exchange of cash is very similar to movement of money to shares or other derivatives with in the asset economy. A theme explored in Wealth Creation and Wealth Destruction.

If Christmas were purely an economic event Scrooge and his latter proponents would have won the argument a long time ago but life is for living and we like our festivals in whatever form they come; be they solstice, spring, Lunar; secular or religious.


22nd December 2013

Nelson Mandela- The man and his legacy

The BBC gave the announcement of Nelson Mandela's death a suitably grave treatment by interrupting the schedule and whilst the event may have justified it, the news report soon became repetitive as they ran out of details. It could have gone on like this but along with the predictable coverage of the historical struggles it soon provided an insight into the man behind the icon and the contemporary South Africa he created. This was clearly an intelligent and able operator but a common theme to the warm memories was someone who could understand the needs of others and a propensity to forgive. It is perhaps these two qualities that go to the core of his greatness. They can also be seen as sign of willingness to compromise.

I make this point in some Radio 4's 'Thought for the Day' way. As I see it compromise, or the need for it, is a driver in the human decision making process and a theme that I explore in Wealth Creation and Wealth Destruction. I cannot know where Nelson Mandela's understanding for the need to compromise came from (maybe I should read his autobiography) but I suspect it was formed from his experiences on Robben Island. He was imprisoned in his mid-40s, a time when many men and women in positions of power  can develop a tendency to be pompous which if left unchecked leads to self-importance and a belief in ones opinions regardless of their rightness. The results of this can be seen in a number of African countries where popular freedom fighters once in government slowly turn into autocratic despots. This is not just limited to Africa, western leaders can also susceptible to this pitfall but the democratic institutions are generally strong enough to remove them before it becomes a problem. Nor are the rest of us immune but having a boss to answer to generally forces us to consider our actions. In prison Mandela had compromise by answering to the regime but he also found ways of fighting back with dignity giving him an understanding of his oppressors.

When Mandela was voted in as South Africa's first democratic President he choose not to outstay his welcome, like many of his contemporary's, and served only one term. This is perhaps his greatest legacy as it established the concept of limited terms served that later Presidents will find hard to overturn. In doing so the office is now larger than any individual and even leaders have someone to answer to.


8th December 2013

Is this the end of rising UK house prices

There are a number of contradictory indicators on the UK economy - On a personal level I got unusually caught up, on Saturday, in a traffic jam journeying to my local town centre. By itself nothing of note but the last time I remember it happening was before the crash when it was a regular occurrence. It was also noticeable on that visit that a number of the boarded up shops had re-opened. These new shops were mainly of the Poundland variety but it all provides a positive sign for the economy that 'people' are starting to go out to spend. As with many I attribute this spurt of growth to the stimulus given to the housing market but strangely there are very few 'for sale' signs about for this mini-boom. Now it could be that houses are being snapped up quickly but that never stopped estate agents advertising their successes, with under offer or sold. Again by itself this could be a curiosity but Friday's (29-11-13) Guardian reports that house prices are down 0.2% in October according to the Land Registry. On the same page was a report that Kingfisher the owner of B&Q were seeing flat sale despite a boost from the aftermath of the Saint Jude storm. The general economic view is that the Land Registry figures are a blip but it could be that the housing boom is running out of steam and if this is the case the reasons are twofold. First the much of the housing activity seems to be made up of those with money already; overseas buyers and those investing in buy to let. For the remaining buyers demand has been pent up for five years and in the future those with the resources to buy will be reduced. The buy to let investors in the short term are one of the drivers for rising house prices but in the longer term it will be negative as they look for suitable returns which will inevitably result in higher rents. This in turn impacts on the wider economy with less money circulating in it and further reducing number of those with the resources to buy. This is all before The Bank of England pulled the plug on cheap money to mortgage lenders so we could see significant slowdown in house price rises with the consequences for the wider economy. Without the new money currently entering the real economy from mortgage lender growth the current growth will stall.