Monday, February 06, 2006

Why is Western government keen for our society to be continually focussed on spending?

I belong to that group broadly brushed as middle-class-Generation-X (born 1970), a child of an early Baby Boomer couple (born 1941 and 1943). Ever since I could remember, I saw my parents work hard to save, save, save as interest rates were high, high, high. Growing up, we scrimped and saved. My brother and I had paper routes from the age of 8 and we learnt the value of working hard to achieve one's goals. We went to university and it was there I majored in Economics and Marketing - discovering a love for macro economics.

In this week's news, Mr Brown is commented as being keen to close the productivity gap, that is, bringing the UK productivity in line with the US. Apparently us UK workers (I visaged the word 'drones') are being destined for digital lifestyles; software developers for mobile communications and digital tv technology within various sectors.

This strikes me as being odd for few reasons.

Firstly, why is the US's productivity being established as a benchmark for the UK to compete with? Would not the China's productivity be a more realistic target if we were to raise the bar here? The US is apparently growing at the slowest pace in three years. In addition, the US have a new Federal Reserve Chairman for the first time since 1987 which I feel may bring in some higher interest rates again - does this make the US an easier target for Mr Brown? China's GDP, on the other hand, has grown from 8% in 1973 to 19% in 2004 (on a par with both US and Europe). If we are compete effectively with our GDP, should China not be the ideal target?

Secondly, if GDP is THE tool for an objective comparison between countries the world over, shouldn't there be a more efficient government system than changing the ways we manage our infrastructure every time a new party comes to power? Understandably a country's population votes for a change of party every several years, however constantly changing party policies could be argued as being detrimental to the GDP.

Thirdly, I caught a show on BBC2 on Thursday 8pm called "How to pay off your mortgage in 2 years". It occured to me that those clever old souls over at the BBC were on to something. For the last decade we have been subject to the concept of 'credit is good' - this month saw the release of a debit-card for kids, and we have seen every facet of the plethora of tv shows and consumer magazines on constantly better homes and gardens. Suddenly we are back to the ways of the 70s and 80s where saving seems to be the way forward. In 2004 the US (the country of true consumerism - emulated in all good west societies), had mortgage debt levels over $8billion, consumer debt has quadrupled since 1987 and credit card debt levels are on average over $8,000 per family. We have seen the tell-tale signs of tighter money over the past couple of years - it is not often that retailers put up signs that say "70% off SALE". Keeping interest rates low has encouraged consumer spending. Are we in for a return to double-digit interest rates again?

It just stuck me how an interesting phenonema this was for the world over.


At Tuesday, 07 February, 2006, Blogger Damian said...

You are kidding me - a debit card for kids! Where did you find that one? It's like a training card for kids. Soon cash will go the way of vinyl records. You'll just walk into a shop, they'll read the microchip in your neck and say, "I'm sorry sir, you can't afford anything beyond Aisle 3."

At Wednesday, 08 February, 2006, Blogger Damien said...

Sure thing - apparently the card helps kids of the Naughties to purchase magazines and pay for mobile phone calls. Whatever happened to pinching dad's spare change?

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