Like blind men in a room who feel parts of an elephant and conclude that it is a snake, or the trunk of a tree or whatever, economists and economic journalists tend to concentrate on particular problems and cannot imagine the whole.
The whole problem is quite simple. There are heaps of money in the world and a great deal of it has nowhere to go. To be more accurate, a large amount of the money has nowhere to go by way of sound, traditional economic investment in goods and services which used to give increasing satisfaction and status to purchasers and thereby brought a reliable return.
Here are a few symptoms of the problem:
1. Banks and insurance companies are investing trillions of dollars in Securitised Credit Deposits (SDCs) because they otherwise don't know what else to invest in. SCDs are supposed to be carefully selected debts (on house mortgages, household goods, etc) which are grouped together and sold as neat packages of "fail-safe" investments. Those buying them haven't the analytical resources to look inside these packages and see what's there. They take their contents on trust. Most of the original SDCs (quality house mortgages) were probably sound. They have grown so hugely however in recent years, that many (most?) of them today will prove worthless in the event of any serious economic downturn when the originating debtors will be unable to pay;
2. Trillions of dollars are being speculated on the foreign currency exchange. More money is going backwards and forwards every day than the combined reserves of all the central banks of the developed world. Foreign exchange, which ought to be merely currency arbitraging on the margins of world trade, is growing at 20-25% per annum compared with world economic growth of around 4%;
3. Despite a low dollar which ought to enable America to export vast quantities of new household goods and services to its main trading partners in Europe and elsewhere it is failing to do so. Its trade deficit is expanding all the time;
4.For lack of other outlets, billions of dollars and their equivalents are now going into housing and other property, particularly in the two countries, America and the UK which, at present, are the only two developed countries which are not going through either an economic downturn or are already stagnant. See the following extract from today's item in the New York Times to read about the continuing surge of new housing in America (40% of which is for second-home buyers). In the UK the situation is slightly different because there are strict Green Belt planning restrictions and insufficient houses can be built at affordable prices -- so it is a matter of house prices rising even though young people on average wages cannot afford even a two-bedroom starter-apartment. Here, the whole conveyor belt of house purchases -- from first homes through to the luxury homes -- has been broken. Instead, vast surpluses of money are jumping the usual consecutive process and going into the higher-priced homes and into second-homes in the countryside or on the continent of Europe.
All in all, the great economic machine of the last century is faltering because of a satiation effect by customers in developed countries. By way of their main household goods -- the ones that drove the consumer revolution from 1800 until about 1985-90 -- they now have enough to use and entertain them. They're only buying trivialities, cheaper electronic replacements and evermore make-overs and variations of existing goods and services. And, because there is no more real "value-added" or "profit" these days on which real prosperity depends, the average person who is lucky enough to have a job in the developed countries is having to work longer hours (or take multiple jobs) even to afford to buy or replace the basic commodities and services which were born in the last century.
China, South Korea and other south-east Asian countries are not solving the problem either, even though they are now sustaining world trade. They are just catching up. They are simply making the goods that we used to produce, better and more cheaply.
The elephant is now a greater problem than the economist can solve or even conceive. Consumer goods only have relevance within a context of showing or enhancing one's status within a community. But because communities have well-nigh disappeared with only brief imitations of them within our daily work environments, then consumer goods themselves will cease to have the motivation they used to have when driving the industrial/consumerist revolution of the 1800-1985 period. Instead, such basic consumer goods, plus health care, plus pensions are now conceived to be "rights" which nation-state governments are supposed to deliver to all its citizens by way of "controlling" their economies and laying down comprehensive welfare systems.
Something very deep is now happening in the economies of all the developed countries. In becoming individualised to the extent that we have, we have lost our communities and the cultures that used to go with them. A very considerable reconstruction is needed but I'm afraid that conventional economists are the last people who are going to supply the know-how and nation-states are the last institutions that can afford it even if they knew how.
Human evolution still proceeds, however, and I suspect that the meritocracy of which George Young wrote -- and dreaded -- in The Rise of the Meritocracy published in the 1950s is already supplying the beginnings of an answer in the form of gated and managed communities. The entrepreneur who can start to open up this market and supply the infrastructure for jobs at the same time so that work and community can be conjoined again will make a fortune. There'll be vast proftis to be made (by entrepreneur and customer alike) because such dispersed environments will be so much more efficient and humanly satisfying than the metropolitian-suburban structures we have today.
Keith Hudson
<<<<
APRIL SALES OF NEW HOMES SHOW A SURGE
Jennifer Bayot
The country's avid appetite for real estate propelled sales of newly built homes to a record pace in April, the Commerce Department reported yesterday, helping to raise prices and adding to concerns that the housing market may be in overdrive.
In another sign of the economy's strength, the department also reported that orders for durable goods like aircraft and computer equipment rose 1.9 percent last month after three straight months of declines. That strong showing was the latest in a series of April economic reports to reverse poor March numbers.
"On the whole, the data for the month of April have quarantined the March soft patch to a one-month event," said Alan Levenson, chief economist at T. Rowe Price, the mutual fund company.
Housing appeared more robust than ever. New-home sales rose 0.2 percent in April, to an annual rate of 1.32 million units, the government said, putting 2005 on track to break 2004's record of 1.2 million in sales.
New-home prices rose 3.8 percent from the previous year, reaching a median price of $230,800, with half of the houses costing more and half costing less.
"Housing is red hot, and nothing has happened to discourage people from thinking it will remain that way," said Joshua Shapiro, the chief United States economist at MFR, an economic research group in New York.
.....
New York Times -- 26 May 2005
>>>>
Keith Hudson, Bath, England, <www.evolutionary-economics.org>
_______________________________________________ Futurework mailing list [email protected] http://fes.uwaterloo.ca/mailman/listinfo/futurework
