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This phrase was the philosophy of Wilkins Macawber in the Charles Dickens novel published in 1850 and is remembered along with the famous phrase:

Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."

But we have to remember that this was written 125 years ago long before the days of credit cards and other forms of easy debt. Now rather than just annual income we must add and available extra credit. Misery arises then when expenditure exceeds income plus available extra credit. We have had this situation since the financial crisis not just on personal levels but also at National levels. Wealth and money are not like energy where no new energy can be created after all we can just print more - quantitative easing could be considered in this category. But whilst money is not like energy it has limits.

If in the UK we wish to claw our way out of our fiscal hole we must increase the net wealth of the Nation and as a result the population. The principle of the modern world has to some degree been based on inflation, something the economists and politicians quite rightly fight against as it is difficult just to have a little bit of inflation.

The good thing about inflation is that wages go up as well as prices so if you borrow today it will be more affordable tomorrow and if you buy it today you will save money because the price will go up tomorrow. However now we have a situation where wages are not going up and the credit is not there, plus if you wait for something the price may well go down. These are factors which are no good for a consumer-based economic model such as our own.

The old mantra used to be exports; if we sold our goods to foreigners then we would get their money and we would be richer and have more to spend. The problem is that in our world economy, everybody is trying to do the same thing! Because the ultimate consumer tends to make most purchases based on price, the ones doing the net exporting are those able to produce at the lowest price. Don't worry because in time cycles the cheapest nations grow, have inflation and then become expensive. The day will come when UK is again a low cost economy!

The over-riding issue is that when you have spent all your money and borrowed as much as you can, as Western economies have, a point is reached where only time and a degree of frugality will cure the problem. Now in the run up to a General Election the Tories offer tax cuts (reducing their income) and Labour offer more public spending (increasing their expenditure) which all seems at odds with deficit reduction.

What would Macawber say now?

Jonathan Russell

ReesRussell

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