Exporters must do more

Graham_Devon

Says Martin Weale.

Basically, he's stating that exporters themselves must take risks. He suggests the pound has fallen 20% since 2008 and exporters have done "nothing more than hold their own".

He also states that Britain could be helped by further currency depriciciation. Britains workers could help, by becoming "more prouctive" and accept further inflation adjusted wages (in other words, work more for less money as they want to decrease the pound and increase inflation).

Is this fair? Is it up to us personally to simply accept further dilution in wages, further and higher inflation and for business themselves to take risks, all in the name of "britan"?

http://www.telegraph.co.uk/finance/economics/9874144/Exports-can-lead-UK-back-to-growth-says-BoEs-Martin-Weale.html

Thrugelmir

Has Martin Weale ever run an export driven business?

HAMISH_MCTAVISH

Graham_Devon wrote: »

Is this fair? Is it up to us personally to simply accept further dilution in wages, further and higher inflation and for business themselves to take risks, all in the name of "britan"?

"Britain" is no more and no less that the sum of it's people and businesses.

The problem that you are only now starting to realise exists, is that things which can make sense for an individual..... frugality, thrift, deleveraging, saving, etc.... can ultimately be very bad for society and the economy as a whole.

The paradox of thrift explains this concept well.

If too many people try to save more/spend less, then consumption/demand will fall. Which will then reduce output/production, which will then reduce jobs and wages, which will then result in lower total savings in the population because of the decrease in consumption and economic growth.

The paradox is that the total savings of a society will fall if too many people's individual savings attempt to rise. And so an increase in savings will ultimately be harmful to both an economy and most individuals within a society.

The same principle applies to businesses and risk. Companies hoarding cash that is not deployed generating productive returns. Companies trying to play it safe, or downsize, or reduce costs. If they all do it at once, they all end up suffering from diminished returns and worsening market conditions, ultimately reducing their performance and threatening their profitability. Because they tried to play it safe and de-risk.

Graham_Devon

Aye Hamish, but theres also the other side of the coin.

That other side being when consumers can't spend anymore. This could be due to increasing prices reducing the amount that can be spent elsewhere (fuel, food, housing etc), or decreasing wages.

Unfortunately at the moment we have a combination of 3 things.

1. Inflation in general goods, dictating that the consumer can't spend on as many goods as previously, as fuel for example takes a great proportion of their income. (So the shoe shop may have to forego selling a pair of shoes as money has been used on increasing rents).

2. Static / low growth in wages, meaning the combination of points 1 & 2 is heightened further.

3. Paying off debt from the previous decade. If some of that debt was caused by increasing prices in the first place (which evidence shows it could be, due to rising commodity prices outpacing wage inflation). Before now, we've simply been rolling over debts...but that's not possible for many now as they can't access the new debt products, so are forced to pay it down.

So, is the answer here simply to expect the consumer to deal with points 1, 2 and 3, and assume they should spend more?

Or is the answer really that spending more simply isn't an option. Therefore, no matter what the theory may be, it remains just that, a theory.

grizzly1911

We also consume to many imports of little real merit other than personal gratification.

We can't escape importing necessities like fuel and energy, some food stuffs and production commodities.

We can consume more within the economy drive up production here. Even things like overseas holidays drain the economy.

All a question of balance if we import less dross our exports become more worthwhile.

Thrugelmir

grizzly1911 wrote: »

We also consume to many exports of little real merit other than personal gratification.

We can't escape importing necessities like fuel and energy, some food stuffs and production commodities.

We can consume more within the economy drive up production here. Even things like overseas holidays drain the economy.

All a question of balance if we import less dross our exports become more worthwhile.

If anything imports need to fall. Rather than expect exports to rise.

As money not spent on imports would then circulate and benefit the UK economy.

kabayiri

Thrugelmir wrote: »

If anything imports need to fall. Rather than expect exports to rise.

As money not spent on imports would then circulate and benefit the UK economy.

This seems a very salient point.

It would help us if products shifted from pure cost to longevity; repairability and upgradability.

Sadly, this seems not to be the case , eg
http://www.theregister.co.uk/2013/02/14/surface_pro_teardown/

The latest most popular tablets and PCs from the likes of Apple and Microsoft are scoring as low as 1 out of 10 for serviceability.

It does seem we are seen as pure consumer fodder by the corporate giants. As long as we replace the iPad every other year and the laptop on the alternate year they are happy.

The government bangs on about a green agenda. Well, a truly green government would encourages product which share common power supplies, and are easy to service and repair locally.

HAMISH_MCTAVISH

Graham_Devon wrote: »

So, is the answer here simply to expect the consumer to deal with points 1, 2 and 3, and assume they should spend more?

Or is the answer really that spending more simply isn't an option. Therefore, no matter what the theory may be, it remains just that, a theory.

The facts prove the theory is correct.

-The household saving ratio increased to 7.7 per cent by the third quarter of 2012, (last available data), up from 1.7% just prior to the recession.

-Gross household saving was £21.2 billion in the same quarter, up from £20.3 billion in the second quarter of 2012.



And the same thing applies in the business world.

Companies are hoarding cash at high levels.



So the reality Graham, is that both businesses and consumers are hoarding cash.

In order to end such financially unproductive behaviour, central banks are very likely to want to trigger inflation so as to incentivise risk taking behaviour that deploys capital productively in the economy, rather than seeing it hoarded and devalued by inflation.

Graham_Devon

As I said, we were spending on credit...therefore, saving ratios are bound to go down.

The statistics can prove anything, so long as you choose the right year.

Here's another, looking at saving ratios BEFORE the explosion in credit. Were still below most data points in the 90's.

HAMISH_MCTAVISH

Graham_Devon wrote: »

Were still below most data points in the 90's.

Savings rates tend to increase after recessions. It has happened today, and it also happened in the 90's.

But that doesn't change the facts, that both households and businesses are hoarding cash instead of spending it in the economy.

Nor does it change the fact that households and businesses are perfectly capable of spending more and saving less to get the economy moving again.

As central bankers know full well, hence why they are disincentivising hoarding through low interest rates and higher inflation.

A savings rate approaching 8% of household income, while the economy flatlines at best, dropping into and out of double or perhaps even triple dip recessions, categorically proves the paradox of thrift is correct.

Graham_Devon

You can't force people to spend. Just as you can't force people to borrow.

The fact we have an economy that can't function if people save just 7% of their income says a lot about either the state of our economy, or the the foundations on which it is built.