What to make of Economics eh? Is it a science or is it just a weird combination of voodoo and statistics?

Long long ago when I was studying my 'A levels' one of the subjects available was Economics. Several of my friends studied this and although I didn't take much interest I still half recall the discussions and arguments that this seemed to inspire amongst them. This was in contrast to my attitudes towards Chemistry, Physics and Maths. I couldn't get worked up about Integration of natural numbers or the properties of Benzene in the way that those guys (and it was always guys) would argue about Supply and Demand and the mysterious Keynes. It has to be said, as well, that they all had an aura of smugness about them that teetered on the brink of punchability. Very similar to the attitude exuded by the likes of George Osborne and David Cameron.

Personally I've managed to live my life for many years without taking any interest in Economics. Don't get me wrong I know plenty about economics - I've got bank accounts, credit cards, mortgages, loans, life assurance, wages and bills to pay just like everybody else.

However what with me working for a bank and the whole world allegedly going to hell in a handcart its quite difficult to be so indifferent to Economics these days.

The first thing you notice about Economics is how many assumptions there are. "People will always do this" "The Market will always do that" etcetera etcetera. In fact I sometimes feel its closer to a religion than a science. You have groups of economists with different views (which kind of reminds me of Catholics and Protestants for example). One lot may believe that the Market will always balance itself and no intervention is required. Others believe that governments should intervene to give the economy a shove in the right direction.

Looking at the problem at hand it seems to me that we have been here before. No not in the 1930s I'm thinking back to those long gone days of 2008. Do you remember the days of the 'big crash'? There was much wailing and gnashing of teeth. Bankers were repentant and humbly promised to 'mend their ways' if only the government would save them. Everybody agreed that this was a big 'wake up call' and things would be different from now on.

Here we are three years on and does anybody feel that any lessons have been learned? Once again institutions have to be bailed out. This time its countries rather than banks. This time though I'm coming to the conclusion that we are being conned. The problem appears to be that various countries can't pay off the money that they have borrowed. So there is talk of giving them money to pay off their loans. I would feel happier about this if I thought that this was being done to make life easier for the people living in the countries affected. The reality is that this is being done for the benefit of the financial institutions that have lent the money in the first place. In a nutshell the taxpayers of various countries are being asked to club together to bail the banks out. Does this sound familiar to you? The people who live in the troubled countries meanwhile are being asked to endure austerity and a massive collapse in their life styles. As far as I can tell this will happen to them whether the loans are paid off or not.  I do begin to wonder if the solution is to just let the countries default and see what happens.

I know some people will say well the Greek people (for example) have been spending money they don't have. Yes they have but to be fair they are not the only ones. In every country in the Western world this has being going on and lets be honest nobody forced the banks, who lets not forget are run by highly paid professionals, to lend the money. People may go on about lazy southern Europeans with gold plated pensions. However if you were offered the same by the politicians and the banks were happy to finance it would you not happily snap their hands off? 

Look at the UK. Listen to the average person and they will either be moaning about how much money they are paying out in taxes or bills or they will be whingeing about a perceived lack of service. Frankly everybody wants everything but they are not willing to pay for it. So politicians are under constant pressure to spend more but bring less money in via taxation. A politician is only thinking as far as his or her's next election and so it can seem an attractive idea to borrow money with the view that in the long term the debt will be somebody else's problem.

Such short term thinking isn't limited to politicians. In the cut throat world of the stock markets a company is only as good as its latest set of results and the bottom line is that they must make more profit than last year. When companies stop selling things they have to resort to other things to make their profits look good. So then they look to cut their costs. They spend a lot of their money on wages. So sacking workers (or replacing them with cheaper workers) is one short term way of cutting the costs. Obviously this trick can only be performed once.  It can't be repeated. By then the chief executive has pocketed his bonus and may well have moved onto another company where he will repeat the trick. Meanwhile his previous company find their share price dropping as they continue to not sell stuff but now have no costs they can cut (and no plan B if they've sacked all the people that invent new stuff to sell).

If all this wasn't enough to screw us up there is also a real lack of vision; thinking about the wider picture and general inability to foresee the consequences of actions. For example a company may announce that they are implementing a big program of increased efficiency which will sadly lead to the displacement of several thousand employees. Immediately the company's share price will start to shoot up as the city celebrate the good news and the chance of an increased dividend for the holders of the company's shares. Next day the whole stock market will drop (including the price of our aforementioned company) on the news that the latest government figures show an increase in unemployment. Somehow nobody makes the connection between an individual company (or in reality many companies) laying off workers and an increase in unemployment. Similarly the stock market doesn't seem to recognise that employees are also consumers. If millions of people lose their jobs they will inevitably have to economize and so will buy less. The knock on effect is that companies fail to sell their goods and their profits drop. 

On top of all this is the new breed of financial people who don't necessarily depend on companies making a profit to actually make some money of their own. Instead in their murky world complicated transactions are dependent on the failures of companies or even countries!

Anyway its easy to mouth off criticizing all this but have I got any solutions? Well actually I have got a few ideas.

Firstly massively simplify the financial world. People need bank accounts, savings, mortgages, loans (including credit cards), insurance and pensions. All these things are pretty simple and I think its reasonable that the companies providing these services should make a profit. However it is also reasonable that this should all be regulated properly. It is too easy to overcomplicate things and also to sell people things that they don't really need.

Similarly the stock market has a function. It is a way for companies to raise money. People are giving the option to invest in a company and share in their profits (and also bear any losses). However I would tighten up rules particularly around dividends (when the shareholders get a share of their profits) how they are calculated and how long you have to hold onto the shares to receive a dividend.

As for the whole speculative side of the financial markets such as 'futures markets' this is just gambling and should be treated as such. It should be separated from the legitimate financial activities mentioned above. It should be heavily taxed and regulated.

Secondly politicians need to have more accountability to what they promise. Parties manifestoes should be checked for realism and if what they promise is not realistic or is too dangerous this should be flagged up. Also when politicians then fail to deliver what they promise then there should be sanctions against them.

Thirdly the way political parties are financed needs to be overhauled. In fact this needs to be done to ensure that the first two points can be tackled. At the moment the Tories are financed by a group of people who are then seeing their interests protected even when it is not in the public's interest (examples include the planned attacks on the BBC for the benefit of Murdoch and the plan to privatize huge swathes of the NHS to the benefit of big businesses that sponsor the Tories). Similarly the Labour party are indebted to the Unions although this is a much more complicated relationship because when in power Labour have to kowtow to big business as well.

I'm not sure what the best way forward is here. Obviously to have the state finance the parties is not ideal because it would then be easy for the party in power to 'turn off the taps' for the other parties. Perhaps a cap on individual donations? In any case there needs to be much closer monitoring of this whole situation with appropriate penalties for corrupt behavior.

Finally we need to change our mindset away from the idea that economic growth is the only way forward. We live in a finite world with finite resources. So the idea that we can continue to have growth indefinitely is not realistic. We need to start looking at a more sustainable way of life. Perhaps a bit more of make-do and mend rather than buying the latest shiny things. Personally I'm more than happy with second hand (or should that be vintage in the modern re-brand). A lot of my vinyl records and the parka I wear in winter were owned by other people before me. Also we should make more use of new technology to save resources. I know people (including myself) will mourn the passing of vinyl records, magazines and books but there is the technology to produce these things digitally and use less wood, oil and other valuable resources. A good start would be for you to cancel your subscription to the Sun (or whatever your daily rag of choice is) and get reading the Yorkshire Windbag :-)