Economics News

December 12, 2010

A university education helps you despise the
wealth that it stops you getting.

Russell Green—there’s causality between educational standards and economics growth: it goes from the latter to the former!

During horrific Middle Eastern wars, university students were quiescent.
The undergraduate and the banker share many characteristics: unconscionable selfishness and financial naïveté, for instance. But both, rather ironically, have very high opinions of themselves. They suppose the contributions they make to the community to be high, but the costs they impose on it low!

They marched only when their handouts were threatened
Last week’s events highlighted the parallel. Neither Parliamentarians debating tuition fees inside the Chamber, nor students terrorising the streets outside (the one puerile, the other neanderthal) seemed to have a firm grasp of the issues. It had been much the same when the Bank of England attempted to save RBS and HBOS in 2008: the Governor and his Deputy acting boldly, but not very responsibly.

Blame the Bank of England!
They recommended that the bad banks be saved, not closed; that taxpayers’ funds be sequestrated to this end. It set a precedent. If the taxpayer could be forced to bail out a delinquent bank, why not an underperforming university as well? And if the greedy banker was to be rewarded for his incompetence, why not the covetous undergraduate for his folly? King and Tucker have a lot for which to answer!!

Of course, the student must bear a large part of the cost of his education.
The reality is simple. Education is expensive; university education very expensive. But who’s to pay the bills? There are only two alternatives: the general taxpayer or the student himself. Both may benefit from higher levels of educational attainment, but the lion’s share accrues to the latter. It has to be he, therefore, who pays the bulk of the cost (delayed, of course, to suit his cash flow profile).

If he can’t see that, he oughtn’t to be at university.
How could people come to any other conclusion? Only bankers might be avaricious enough, LibDems dim enough, to propose anything else. Did the thousands of students who marched up Whitehall not understand? Or did they just pretend not to? Were they fools or knaves? It’d be a damning indictment of their intellect if the former; a damning indictment of their morality if the latter!

And the banker, coincidentally, shouldn’t be in a bank!
It’d be a different matter if people were being forced to go to university. They’re not. If they no longer find the deal attractive, let them not go. How do they respond to this line of reasoning? Angrily. They want it both ways: they want an option which lets them keep the profits if the trade goes as intended, but to pass on the losses to others if it doesn’t! Does that sound familiar? It certainly does!!!

Nor the LibDem in a Coalition.
And what of the Coalition? Can it survive? Not for long. The LibDems, like the Liberals in the thirties, are disintegrating. The party does not have much of a future. It may not exist after the next election. It’s possible instead that it’ll divide into three parts: one being absorbed by the Tories, a second by the Socialists and a third by the Greens.

Economics activity is moderating.
The world economy, meanwhile, is drifting into slower growth. China looks as if it’ll be the swing factor. Last week, the authorities indicated that they’re going to tighten liquidity fairly sharply. They’d prefer to slow things down a little straight away, rather than a lot later on. Of course they would! But there’s a risk that the setback is immediate and severe.

In America, tax rates’ll be cut.
In the US, the Republicans look as if they’ll be able to get the tax reductions they want. Will that boost consumption and investment? Probably not. But it’ll have one big advantage: it’ll force them to keep public spending under wraps.

In the EZ, attention’ll focus on the fiscal deficit.
In Europe, attention is still focused on the single currency and on what the authorities there think sets it at risk: the fiscal deficit. In Greece and Ireland and elsewhere, therefore, public spending is being slashed and taxation lifted. The outlook for some of the economies is consequently poor: their GDPs may fall at more than 5% per annum for several years.

High beta is a double edged sword.
Will the emergers and the commodity producers hold up in these circumstances? Probably not. They’ll share in the pain. They’re high beta economies. They’ll fall faster than the average for a while.

Valuations to continue to rise.
Markets, though, will hold up—in the short term at least. They were temporarily depressed by the euro’s troubles, but bounced back as soon as the immediate crisis passed. Valuations of both bonds and equities are expected to continue to rise. Easy money, low inflation and resilient profits will do the business.


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