Saturday, 21 November 2009

The Practical Men And The Defunct Economist

Cover image Cover image

One of the more interesting features if the futurist community is that some members have very long memories. In an article that is now famous within the futurist community on the future of futurology in The Economist (see article), the whole art of crystal ball gazing was held up for ridicule and opprobrium. I had to chuckle to myself when I saw the cover of this weeks edition, which speaks directly to the futurist agenda.

The Economist is one of those global magazines that has a different cover for different audiences. The North American edition leads with an article on dealing with America’s fiscal hole, whilst the UK and Europe editions lead with the problem of feeding the world over the first half of this century. The contents behind each cover are identical – apart from a bit more UK content for UK readers – and the leaders link to content within the structure of the magazine.

The story about America’s fiscal hole has a leader (see leader) that outlines the opinion of the magazine, which then ties to a story of greater depth that outlines what has happened, and what may happen in the near future (see story). The same structure is followed for the story about feeding the world. A leader sets out the position of the magazine (see leader) which then ties into a more factual piece about the situation (see story).

I found these articles of interest because they speak directly to a futures agenda that we are presently following. In our view, the global economy is currently transitioning from one equilibrium (the old paradigm) to another - which we are calling the ‘New Normal’ (see previous post) – that has been caused by the financial meltdown of the past couple of years. The dominant feature of the New Normal, a period that is set to dominate between 2007 and 2020, is the high levels of public sector debt throughout the OECD nations. However, this impact of the PSBR on the global economy is likely to be set against a background of growing scarcity, in terms of Food, Energy, and Water, as we head towards ‘Peak Just-About –Everything’. Needless to say, we are calling this the ‘Age Of Scarcity’.

I found it ironic that The Economist, which had derided futurists in 2007, is now falling into a blatantly futurist agenda. It may be the case that we don’t use flying cars, and we don’t have jet packs to transport us about. We do, however, consider issues that will impact all of us in the future, and, as a serious magazine, The Economist has to address that futurist agenda. As we have been warned:

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." (John Maynard Keynes)

The issues covered in this post are dealt with at greater length in our forthcoming book “The Age Of Scarcity 2010-50”.

© The European Futures Observatory 2009

Thursday, 19 November 2009

Touching The Bottom?

The October UK unemployment figures were released recently (see report). The encouraging news is that the rate of growth in unemployment has slowed dramatically this month – an increase of only 12,900 in October, against an increase of 20,800 in September – to bring the total unemployed to 2.46 million. Of course, each one of those people who are unemployed represents a tragedy in itself, but, compared to the doom and gloom earlier in the year, this is quite a good recession.

For the benefit of those who have joined this list over the summer, perhaps we should give some background? At the start of the year, the conventional wisdom held that UK unemployment would hit 3 million by the end of this year. This sounded like an exaggeration to us – a case of dystopian forecasting mixed with a bit of political Schadenfreude (see original post). By the beginning of this year, we were comfortable with the view that unemployment would hit about 2.5 million by the end of this year, placing us quite at variance with the conventional wisdom.

Why does this matter? We originally came to this subject when we were calculating the size of the post-credit crunch PSBR and when we started to estimate the length of time that it would take for the UK Government to unwind its position. In our original calculations, we felt that the PSBR could be unwound by 2017 (see post). However, that view was based on the assumption of a relatively mild recession with unemployment peaking at 2.25 million. As it became evident that the recession would be anything but mild, we revised our assumption about unemployment to 2.5 million by the end of 2009, peaking a little higher in the first half of 2010.

One of the curious features of the present recession is that there has been very little impact on the unemployment figures. In the UK, GDP has fallen by about 5.9% (subject to revision), but unemployment has only increased by about 30%. In the US, a similar GDP fall has led to the doubling of unemployment. There is evidence to suggest that UK companies are hoarding labour – it will cost a great deal to re-skill a newly employed workforce on the upturn, so companies are working short-time in order to conserve their skill base. We also have to acknowledge the impact of government schemes to protect employment have also slowed the rate at which jobs have been lost.

This will have a great bearing upon the future. To start with, the recovery is likely to be relatively jobless as companies simply meet increasing demand for their goods and services by using their existing workforce more efficiently. However, the more significant impact will be upon the PSBR. As fewer workers have been laid off, unemployment payments have not risen as much as it was feared that they might and tax revenues have not fallen quite as far as they otherwise would. In terms of our previous estimates, it is still likely that the UK government will be able to unbundle its position by the end of the next decade.

If so, then this would imply that the proposed downgrading of UK sovereign debt by Fitch might be a little bit premature (see story). It is quite clear that the Pound is being allowed to fall because the inflationary pressures are quite muted and UK companies are enjoying the benefits of easy sales in foreign markets – particularly those tied to the US Dollar (North America and the Far East) and the Euro (Euroland and Eastern Europe).

At present, we are quite upbeat about the UK prospects for the next decade, and it is this context that the good news about the October unemployment figures are served.

The issues covered in this post are dealt with at greater length in our forthcoming book “The Age Of Scarcity 2010-50”.