'Recession' and 'Depression'

Official figures confirmed last week that the UK economy 'contracted' once again - pointing to the fact that the country is still in recession - and it's the first time that UK Gross Domestic Product (the total amount of goods and services produced by a country) has contracted for six consecutive quarters (ever since quarterly figures began to be recorded in 1955). The pound fell further after the figures were released, reflecting the fact that many investors had expected the UK economy to 'grow' slightly in the last quarter, which would have technically taken the UK 'out of recession'.

Despite 'printing money' and generating a 'great deal of spin', the UK is one of the few G20 countries still to technically come 'out of recession' (e.g. France and Germany came out of recession six months ago). Potential investors have seen the effective devaluation of the UK's currency (through the £150bn Quantitative Easing programme), but they are also now able to see through the 'spin', and to see the fundamental weaknesses within the UK economy.

The 'stock market recovery' and 'housing recovery' are all part of the 'spin'/'scam' to artificially raise confidence, as 'assets' such as these 'appear to rise' because the 'value of every pound has been reduced'! As highlighted previously, as the pound slides against foreign currencies (nb the UK pound has already lost nearly 30% of its value against currencies such as the euro), the price of imported goods entering the UK will rise (e.g. including oil & gas), pushing up prices and affecting people's purchasing power further. High unemployment may hold back 'wage inflation', but it will not stop 'import price inflation' or people becoming 'progressively worse off'.

As import prices rise, unemployment grows, taxes increase and massive cutbacks are introduced (to pay back spiraling Government debt), the UK will start to feel the real impact of this Government's failure, their lack of prudence, their self-interest (e.g. MP's expenses) and their support of greed (e.g. diverting tax payers money to bail out banks and effectively paying for their excessive bonuses, rather than fixing the problem and helping hard-working people/businesses) - all of which will negatively impact the overall well-being of our nation for generations to come.

Gordon Brown is telling us we will come out of recession by the next quarter, but as many analysts have pointed out, this will mainly be because of a rush of purchases taking place before the Government puts VAT back up to 17.5% at the end of the year! The timing of this change, alongside the delay in addressing spiraling Government debt, are clearly linked to Gordon's own personal agenda/self-interest and demonstrates a cynical 'misuse of power' ... as he wants to say 'he was the one who brought the UK out of recession' (just before the election), as well as to 'blame others' for it all going wrong afterwards! (e.g. see my previous post on the double-dip recession) ... which shows the sheer hypocrisy of a man who is happy to preach to us about 'values' and 'prudence', despite demonstrating neither of these qualities himself.

In the 21st century, GDP is not a true indicator of a nation's 'economic success' either. The use of the word 'recovery' whilst everyone is effectively becoming worse off, and more and more people are losing their jobs, is arguably perverse too. Such outcomes not only result in 'recession', they also create 'depression'. More holistic measures are needed to assess the overall well-being of a nation (e.g. take a look at the 'BUTS' test for instance) and as the overall situation continues to gets worse, ignorance will reduce, depression will grow and anger will increase (e.g. towards the bankers who are once again 'pocketing' billions in bonuses, whilst everyone else pays for it through increased taxes, and and through more and more people losing their jobs).

Traditional economics is dead, and a new economics & politics is about to emerge (powered by the internet) ... focused on community contentment, the well-being of people, and the ability to create real value for others (founded upon fundamental values such as trust, honor, responsibility, respect) ... instead of focusing on wealth manipulation, based on poor moral values, self-interest and greed (e.g. fueled by envy, celebrity and the media).

The battle of the future is one that transcends nations, and is a battle of values:

Leanomics vs Poweromics & Ignoromics

... where values (and value creation) once again return to challenge poor moral values, self-interest & greed (and wealth manipulation)

Nations that fail to change will fail to survive ... and with the advent of modern communication people now have far more 'information', 'choice', and 'power' ... they just haven't realised, or exercised, it yet ... but they will ... and as Ignoromics reduces Poweromics will be challenged, in many different ways ...

Challenging Poweromics ... and looking for Recovery

Insightful words were this week articulated by the head of Britain's trade union movement, Brendan Barber, as he pointed out the fundamental flaws in Politicians' actions over the last ten years ... as well as the fallacy in promoting the 'green shoots of recovery' ...

"Politicians bought the line that 'Finance' should be 'King' and deregulation the answer to every problem ... activities so well described by Adair Turner as 'socially useless' were seen as 'economically essential' ...

... set finance free we were told, have a bonfire of regulations, let the super rich get even richer ... it will somehow trickle down to the rest of us ... 'manufacturing is old fashioned', 'let the city rule', 'greed is good' ... these were the 'watch words' ... and those whose still preach that greed want us to forget the crash and tell us the economy is now in recovery ...

... but the economy has fallen off a cliff and the green shoots mean little ... when 1000's of people a day are joining the dole queue ... and rising share prices count for little when a million and more young people can't find work ...

and bumper bonuses ... an obscene joke, when it was our money that rescued to banks, and its our public services that are now being told they will have to face the consequences ...

... it's only when unemployment starts coming down, only when we create decent jobs that pay decent wages, and only when vital public services are safe from cuts, that we will be able to talk about a real recovery ..."

Wise words, well spoken, from a leader who can clearly see the wood from the trees ... but what's arguably most shocking & surprising of all is that he's describing the behaviour & actions of a supposed Labour Government (led by 'leaders' supposedly also brought up in the church!) who were once thought of as the voice of communities and hard-working people ... how things have changed ... and how things will have to change for us to get back on course ...

... but unfortunately none of the current politicians & bankers will do this for us ... it will require brand new leadership, new people who truly represent the voice of the people, to take responsibility and turn around our failing economy, and society ... we face a huge battle, a battle of values, one that needs to challenge Poweromics and the basic premise that 'greed is good' ... we need to quickly introduce Leanomics (and leanomics indicators such as the 'BUTS' test - where U refers to unemployment/untapped talent as mentioned above), else we will resign our economy/society to history ...

'For evil to flourish, all it needs is for good men to do nothing' [Edmund Burke]

Employment - more 'spin' than 'recovery'

As predicted the 'spin' of 'recovery' is getting louder, and wider ... for instance a BBC headline today referred to the UK jobs market starting to show signs of 'recovery', making reference to monthly research from KPMG and the Recruitment and Employment Confederation which found "marginal increases" in appointments in August.

"It seems that employers are becoming more confident in their hiring decisions," said Kevin Green, chief executive of the Recruitment & Employment Confederation, the survey's other co-sponsor. Again it doesn't take very long to spot the clear 'self-interest' in such statements, given the interest of such groups to talk confidence/recruitment up.

Despite all the current hype about recovery, little has changed and the latest official unemployment figures show that the number of people out of work in the UK is continuing to rise (unemployment increased by 220,000 to 2,435,000 - to 7.8%) and a picture can often says a thousand words ... and the graph below clearly tells a story (even after all the Government's manipulation - e.g. moving unemployed people out of this category and onto incapacity benefit, moving more students into colleges/universities etc) ...

... and the levels of unemployment are set to rise much further in the future too. If that's what we call 'recovery' ... one has to wonder what 'disaster' looks like? ... and given concerns raised about 'double dip recessions', are we about to find out?

... In my humble opinion I think this is highly likely for a number of reasons (e.g. tax increases/public sector job cuts to try to balance the books and pay off the some of massive Government debt) ... and it's unlikely to be very long before it arrives ... and it sounds like Lord Mandelson (the ultimate 'spin doctor') quietly acknowledges/knows this already too ...

The end of an 'era'

As time progresses, many are looking for the 'green shoots' of recovery (e.g. see my previous post) ... but many people are starting to realise we are coming to the end of an 'era' (see Stephanie Flanders' latest blog). With the UK consumer debt now standing at £1,400,000,000,000, and more & more people worried about their jobs (with unemployment continuing to rise rapidly), it's definitely time to start asking more questions ... the Government are trying to respond early to the risk of another 'lost generation' now too (and to try to reduce this risk of social unrest), but once again this only addresses the symptoms ... it does not fix the fundamental problem.

The fundamental problem is 'traditional economics' is 'too narrow in scope', and is 'effectively dead' ... and the current toxic mix of 'Poweromics' & 'Ignoromics' is now starting to collapse too (nb the advent of internet/mobile technology will predictably make this so) ... a new 'values system' will emerge, and a 'new economics' focused on 'adding value for others' will be needed (see Leanomics) too ... but such changes requires 'leaders' to learn from mistakes ... and they will need to do a U-turn in many of their policies & practices too ... but are the current 'leaders' likely to do this ... well history suggests not and recent articles suggest very different people will be needed to bring this about too ... so there's a lot more to do, and much more to come ... before we reach the 'real turning point' and start along the 'road to recovery', and the 'path to prosperity' ...

For instance - take a look at my comment added to Stephanie's blog below:

Post 6 (leanomist) wrote:

"IMHO I believe we are coming to the 'end of an era' - and the signs of recovery should not be focused on house prices rising again, people starting to borrow heavily again, or GDP simply stabilizing (or rising slightly again). Traditional 'economics' is too narrow in scope, and effectively 'dead' ... and a 'new economics' will emerge (nb Dr. W. Edwards Deming highlighted the needs for this way back in the 1990's) and new 'economic indicators' will be needed. For those interested in exploring this a little more you can take a look at this post, which also looks at some alternative indicators to use whilst searching for signs of a 'turning point' and the 'start of the recovery'..."

'Traditional Economics' - Here comes the Spin

Spinning 'recovery' is well on it's way ... and as my previous blog pointed out, it's likely to 'work' for a while ... but not for very long*. Comments that 'house prices' are 'stabilising' are abound, and the Institute of Chartered Accountants is the latest 'group' emphasizing the upturn in confidence after they surveyed 1000 accountants around the country ...

The fact that it is in the interests of this group to make such statements should always be taken into account, but I have decided to refer to this article for a very different reason ... and mention it because it refers to the significant upturn in confidence in the 'banking', 'finance' and 'insurance' sectors, and "in particular the remarkable 'upturn' in the banking sector given the turmoil of the last two years".

To me (and many others) this will come as little surprise, as bankers are the only group the Government have helped (at the expense of all others), by bailing them out and presenting them an 'open cheque book' - offering them all of OUR money, which hard-working people will have to payback for generations to come through increased taxes (and less services) ... paying (and continuing to pay) for their failures, bonuses and greed. The Government have also done nothing to reverse the decisions that caused the banking crisis in the first place, or to stop it from happening again.

The Government have once again demonstrated the 'values system' they support and 'economic foundations' (or more precisely the lack of robust 'economic foundations') they have chosen to lay ... based on Poweromics** and the support of 'wealth manipulation' over 'wealth creation' ... and our nation will continue to the pay the price until this changes. My previous blog highlighted some of indicators capable of charting the real situation, but the Government will not surprisingly stick to referring to house prices and quoting simple GDP figures, even though more and more commentators are pointing out they are the wrong measures and completely floored.

They may have delayed the future 'battle' slightly, but not for very long, as the illusion of 'wealth' and 'recovery' will not last for very long, and things will quietly (and rapidly) get much worse (e.g. unemployment, debt, trade deficits, stress) ... especially as the nation believes it's own 'spin' and stops addressing the fundamental problems it actually faces.

The internet/communications technology will eventually change everything (including the 'balance of power', 'politics', and 'economics'). All the 'illusions' will quickly evaporate and the 'bubble' will finally burst. All of these are entirely predictable ... and history (and all current evidence) are telling us that we are not very far away from this now ...

* The Government are hoping it will up to the next general election (which is getting close) and perhaps a little longer.

** Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.

Leanomics - charting the path to recovery ...

Over recent weeks, indeed months, I've been focusing on exposing Poweromics, and the impact Poweromics is having ... and whilst the latter is plain for all to see, the actions causing it are often a little more difficult to spot (hence this blog) ...

Whilst Poweromics prevails this blog will continue to point it out, as well as whose who are doing it and the impact that it's having ... however this blog will do more than this ... as it's not just about highlighting the problem ... it's about telling the story of its demise and about the creation of alternative solutions too ...

I have often pointed out the 'battle' of the future - the 'battle of values' ... which I describe simply as

Leanomics v Poweromics & Ignoromics

... with the latter two being partners in crime ... which together arguably describe the primary forms of 'economics' that prevail today (particularly in the UK and the US). So what about the alternatives? What is Leanomics, and how is it different to the others?

Well this thread, taken from recent comments steered by fellow bloggers (on the Flanders blog "the long and slow recovery", starts to highlight some of the answers to such questions, and to some of the significant challenges ahead ... [and I will add more information in this blog and as the 'future' starts to become 'reality' ...]

.....

"... Nothing will truly improve until Ignoromics* reduces and more people challenge Poweromics ... in your last blog, the following summed things up well:

#79 Random_thought ... "No-one with their hands on the levers of power have any intention of doing anything at all to make the world a more equal place (or fairer place)"

# 86 armagediontimes ... "If they have what you want then you will need to fight, just as they are willing to fight in order to maintain their power/control."

And I believe this crisis has got much further to go before we reach this point (in the UK at least - due to a large dose of apathy) I'm afraid ... and things will be far more desperate when it does happen ... however history says 'happen it will', but I believe (and hope) it will happen in different ways to the past ... (i.e. not wars - as it's a 'battle of values' that transcends nations - which will be powered by the internet ... as the internet will eventually change everything, including politics and power - we just don't now exactly how, or when) ...

I was particularly interested in one of comments you've made in this article ... "Martin Weale thinks that if you measured the 1958 data the same way we measure it now, that first quarter fall would be "probably the worst quarterly economic performance since the 1926 General Strike." ... as perhaps history is pointing to one of the ways 'poweromics' may be challenged (around the world?) in the future ... [e.g. take a look at the great quote in my previous blog 'For evil to flourish, all it need is for good men to do nothing' for instance too].... " (Post 32 leanomist)

.....

A fellow blogger questioned the use of GDP as a measure of success too ...

"... as borrowing money from overseas providers and then converting it (mostly via government deficit spending) into wages and thus GDP is what has given the illusion of well-being over the last few years .... I am far from convinced that national units as they stand are relevant any longer, but if we must persist with a nationalistic perspective, then a better indicator of our economy's performance would be the balance of trade in goods and services (and perhaps net investment income - but not recoverable capital flows for securities etc). This comprises, in the broadest terms, the national "profit and loss" account" ... Looking at this measure, the economy has been operating at a "loss" since 1997 the greatest annual loss being in 2007 - just before the year of horrors - (and for quite a few years before then). This economy has been sick for a long time - it's the illusion of ever-growing GDP that has been the problem ... (I know there are all sorts of reasons why this analogy is strained), but UK plc has been operated like a company patting itself on the back for increasing its sales figures but failing to notice the spiralling costs they have needed to achieve the growth. Result - the bottom line goes to hell in a handcart and only when the bank manager calls in the inevitable overdraft does it dawn on them that they are in big trouble ... Moral - looking at GDP without balance of income stats. is a dangerous practice ...." (Post 42 Raulmagister)

To which I responded, and highlighted a few earlier insights too ... "an argument well put. I was also particularly interested in this too as it aligns well with one of the simple Leanomics tests too (called the BUTS test) ... and it adds a little more sophistication to the "T" term too ... take a look a previous post below which was made back in June, as I think it supports your point too ...

'In a global economy only those capable of offering (and exporting) things other nations want will survive in the long run. This country lost this concept some years ago and/or wrongly believed financial services were the answer!

'Leanomics', a much wider and far more holistic form of 'economics', looks at community factors too ... such as individual well-being and community contentment, as well as the sustainability of enterprise and the environment. For example, one simple Leanomics test, called the "BUTS" test, can create a great deal of insight by looking at debt alongside the capability of the community to pay it back.

B=Borrowing
U=Untapped talent
T=Trade deficit
S=Stress

Trade deficits, untapped talent and stress all negatively impact on a nations ability/capability to pay back debt, and what do these look like at the moment ? I'll give you a clue - terrible!

We have got into huge debt, sold the family silver, demoralised people, stressed people out, created a broken society, overburdened our children (and our children's children), and still have the 1940's baby-boom to come (with a poorly funded pension system).

Nothing has changed, it's just becoming increasingly clearer (and/or harder to hide!) ... I think MrTweedy summed up the situation very well ... just to re-iterate ...

" ... If Germany, China and Japan invested their surpluses in their own economies, and they successfully uncoupled from the US and the UK, it would leave the US and the UK high and dry ... Without foreign investors to buy gilts and treasuries, our governments would struggle to afford their spending plans, and we would struggle to afford our imports ... Britain and the USA would need to find exports to sell to China, Germany and Japan. But just what would Britain sell? I can't think of anything, seeing as exports of bank loans, insurance and defence manufactures were Britain's only trade surplus during the years preceding the economic crisis. North Sea oil is not what it once was. The search continues for Britain's magic exports" ...

... and as I also raised in one of Robert Peston' previous blogs ... ' so tell us the robust plan to pay back all the extra debt we're taking on and at the same time create 21st century products and services that ...

1. People around the world want and are willing to pay for
2. Will create millions of jobs in the UK, and
3. Will systematically reduce our trade deficits and national borrowing ...

Next question ... how are we nurturing and accelerating creativity/innovation to develop these new products and services? Next question ... how are we adopting 21st Century leadership and management to enable both the above? I've been in meetings with Ministers and the CBI - and guess what ... when difficult questions like these are asked they are all 'weighed, measured and found wanting' ..." But are you really surprised ? ... We can't trust them with their 'expenses' ... never mind the 'economy' ! ....." (Post 48 Leanomist)

.....

A fellow commentor also questioned the future of economics and the robustness of our economy, as efficiency levels continue to grow and products/services can be provided using less effort (and by other parts of the world) ... "... we need continual growth to create jobs, especially as we now make things using less and less human labour year on year through the continous efficiency business demands to remain competitive and generate profits. Are we in need of a new model now...?" (Post 52 Jericoa)

So I went to elaborate ..."a good point and a good question ... I believe the answer is partly in how we re-define value, and how we alter/accelerate the way we innovate & improve ... freed up resources/capacity should be used to innovate and create even more value (ie. identifying & providing new/better products and services, as well as continually improving the way we provide current ones) ... e.g. the book 'Lean World' is all about this and explains the leadership / management practices required to do this too (which are mostly common sense, but unfortunately completely opposite to mainstream UK/US practice). Take a look at my post on Stephanie's blog yesterday which I've summarised here below (or at 'Lean World' - you can read it online at Google Books* too) ...

... 'I tend to use the word 'innovation' in relation to new (and better) products / services that provide more value to people / communities (e.g. warmth, transport, food, shelter, entertainment ...) and 'improvement' for finding better ways of creating it (e.g. more efficient means of production) ... when one looks at the innovation in relation to new potential products/services the possibilities are actually vast (which is what entrepreneur's see), and in terms of efficiencies the opportunities are also great too (e.g. using 21st century practices and technology as you have quite rightly pointed out) ... 21st century enterprises will be the ones who marry both of these together properly (ie. more resources are continually needed than are freed up) and communities should (if this is done right) benefit from both (which is what the book 'Lean World' points out)' ... and I hope this helps goes some way to answering the question - and I don't mind if 'leaders' use this in their answer ... so long as they act upon what they say ..." (Post 69 leanomist)

Another fellow blogger also quickly noted the challenges of the global economy, and the fact that ... "whilst resource costs are so much higher in the UK than they are elsewhere - particularly labour and social infrastructure, then in a global market, investors will always seek out to perform production where these overheads are cheapest ... and that fact that if feeling part of an integrated nation (operating under the premises of its own laws, customs and cultural values) still means something to people around the world, they must decide whether they are prepared to accept a sub-optimal global economic system to pay for that perceived benefit ..."

This was a great point, and I added to it with the comments below:

"...I agree with a number of points raised ... and it's important to note that 21st century enterprises like Toyota do not make all their cars in China (or wherever the lowest cost labor is at the time) and ship them to everywhere else ... they invest in most nations/communities it supplies to (including the UK/US*) ... and they do not talk about their values ... they apply their values (e.g. trust, honor, responsibility and respect) ... I feel economies have much more to learn about the future of communities & nations, as well as the future of enterprise too ... I hope this helps a little, and goes some way to answer the points raised ... whilst highlighting even more of the challenges ahead ... * e.g. Whilst the global economy (and GM) is collapsing, Toyota have just announced plans to build their next generation Toyota hybrid (Auris) here in the UK ... "

.....

It turns out that history not only tells a story ... it also often points us to some of the potential solutions needed in the future too, for instance building on the knowledge of people like Dr. W. Edwards Deming and companies like Toyota ... from which the foundations of Leanomics are derived ...

Talking it up ... or dealing with reality?

'Leaders' (e.g. within Government) are trying desperately hard to build up confidence in the economy again by people 'talking things up' ... rather than 'dealing to reality' ...

There has been talk about the 'green shoots' of recovery, particularly in relation to property prices ... but as highlighted previously, this is still focusing on the wrong things ... 

Until 'leaders' start to 'lead', stop applying Poweromics & Ignoromics, and take responsibility for adding value & changing things for the better, the real problems will continue to get worse, not better ... and this will predictably lead to a mixture of unrest, war and death - the 'systems' diagrams showing this are already contained in my book (chapter 8, P215 - 227) ... as well as key intervention strategies for avoiding it ...

–––––––––––––––––––

Comment 15 (leanomist)

A key point that will not go away (for generations) .... 

"With household debt, corporate debt and public-sector debt at record levels in the UK (equivalent in aggregate to 400% or so of GDP)" ....

.... yet people were taken in by the concept of "Prudence" ... the most successful example of 'spin' and the biggest con in history ... and here's another one ...

"But there's a proud history, lots of backbone and a talented squad" ... and "the lesson has been learned (presumably)" .... 

... talented squad? learning from mistakes? ... 'presumably' is the key word here as I've not seen them ... people just try and get better at "spin" (eg Mandy) and at "deflecting blame" (eg. it's due to a world crisis, and nothing to do with us!) ... rather than taking responsibility, admitting/recognising mistakes and changing things for the better ... and how many of the 'leaders' still in power failed to spot the crisis (and in fact tried hard to 'spin' the opposite) ... and yet now want us to believe their predictions for the future (e.g. Government, Politicians, CBI, Economists ...)

I'm afraid innovation, jobs and exports are the things we need to look at, not house prices or football, and many more enterprises, and nations, will go 'bust' due to a lethal combination of Poweromics* & Ignoromics** ... and more unrest, conflicts and deaths*** will inevitably occur unless things change radically and quickly ... which they currently are not ... now history does tell us this ... and the plan is ...?

... to adopt more 'spin' and 'celebrity', talk up the green shoots of recovery, deflect people's attention away from the problems and hope that their memories are short ... the problem is that these 'real problems' are not going away ... they are just getting worse ...

David Clift. A Future 500 Leader

* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.

** Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better.

***http://books.google.co.uk/books?id=-8xAIgkewOUC&printsec=frontcover (chapter 8)

–––––––––––––––––––