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Gordon

UK Economy Unsustainable?

Chief Executive at Business for Scotland

I noticed this story about Revere Award winning Economist Professor Steve Keen talking about the sustainability of the UK economy and I wondered what fellow group members thought?

He says that the UK's economy is highly speculative and that if property prices don't rebound then the last few generations will wake up to realise they have been investing in a huge ponzi scheme (pyramid scheme).



http://www.scottishtimes.com/uk_economy_faces_lehman_type_crisis_says_leading_economist


On a topical point, (given the recent Skintland cover of the Economist) he claims that it would be a good idea in economic terms for Scotland to get out of the Union with the rest of the UK. The often stated argument that the UK offers financial security to Scotland through the Union because of its size, could well prove to be counter productive.

Having lobbied members of the BoE Monitory policy committee in person in 2008, stressing the same issues as Professor Keen is raising here, (just to be told we had never had it so good) I think its a refreshing look at the sustainability of the UK economy. Its not just credit card and personal debt, but mortgage debt that will slow growth and possibly even drive us into a depression.

Thoughts?

  • Comment (91)
  • April 24, 2012
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Comments

  • Ovidio G.

    Ovidio

    Ovidio G.

    Performance Analyst at The Co-operative Banking Group

    Gordon I think the link doesn't work....

    I think the question is very easy: What's the driver for growth of the UK? For the past 15 years it's been the property market which, per se, doesn't give any return. A house alone doesn't produce any wealth. For 15 years the UK has misallocated a huge amount of money investing in something that won't give any return - on the contrary as we could see.

    Construction sector (read: housing) is dragging the economy back into recession. To me - if I really have to be honest and cynical - is a good news. Because it means that HOPEFULLY the country is investing somewhere else - renewable energy, infrastructure, education, health care policies - which should give a return on the investment - unlike housing.

    If this governemt gets it right, it should slowly, very slowly, diverting investments into more value-adding activities (out from construction, more in ROI activities). It's a sort of trade-off in the short term, but hopefully, the loss in the construction sector might be outrun by the gains of the returns in other areas. The UK economy needs to be rebalanced after years of pure economical folly, both on a macro and micro level.

    Blaming the UK weak recovery on the European Union - as I keep hearing on the radio and TV - is utter nonsense. The crisis in UK is self-inflicted, doesn't depend on the Euro or Brussels. It comes from too many years of deindustrialisation - it's remarkable that if Nissan invests in the UK it goes on national news - which has not been replaced by value-adding activities, but property inflation, to cover for the loss in value.

    There is a complete lack of vision and long-term planning if I have to be honest. Going back to inflating properties' values to keep the country going, it's just an extension to its agony.
    We need a new industrial and energy vision in the UK - which I am struggling to see - forgetting consumerism (which is mainly imported from China) and other short-term shortcuts because they won't help.

  • Gordon M.

    Gordon

    Gordon M.

    Chief Executive at Business for Scotland

    Hi Ovidio

    The LinkedIn redirect on the link didn't seem to work, here it is again http://ow.ly/aB2Og

    I agree the booming housing sector has inflated construction over the last couple of generations, but there is nothing to replace it as an economic driver, and so unless housing prices jump back, growth will remain muted.

    I think the UK economy has grown on the premise that there is good debt and bad debt, for people to own. Housing has always been seen as good debt as prices rose but if they don't come back then we have to start wondering if mortgage debt should be thought of as bad debt and that would mean the UK is the most indebted nation around.

    With credit card / personal loan debt levels being virtually unsustainable on their own, personal debt is leading to poor retail and service sector sales, this, plus a failed banking sector, and low levels of disposable income, means that the population can't stimulate growth. Add into the mix Government austerity and low levels of the good type of investment you ask for (renewable energy, infrastructure, education, health care) and we have a perfect storm for a slow decline into depression.

    You hit the nail on the head when you say > We need a new industrial and energy vision in the UK<

    I can see how an independent Scotland could change direction, but the whole of the UK?

  • Brian M.

    Brian

    Brian M.

    Strategist

    The UK has had multiple opportunities to change direction over the past 30 years and has evidently failed to do so. As long as the governmental/economic focus is centred on the city this is unlikely to change, investment and attention will remain london oriented. With the balance of economic strengths between Edinburgh, Glasgow and Aberdeen, I believe an independent Scotland would start with a more balanced view, recognise the needs to re-build an industry base and be a better position to do so.

  • Jim M.

    Jim

    Jim M.

    CEO at Croftek Ltd.

    It will require a new focus and a great deal of investment (in effort as well as money) to try to re-create a truly "industrialised" economy again. One thing is for sure, we wont achieve it through austerity.

    Perhaps Scottish independence will provide the necessary wake up call (for Scotland and the rest of the UK) that a new way of doing things is required.

  • Fiona M.

    Fiona

    Fiona M.

    Chartered Accountant; Interim management specialising in resolving financial problems. Avail 1st Nov: Local/Nat/Intl

    ever escalating property prices was a ponzi scheme, fueling a consumer boom that should never have happened. A declining standard of living for all but the rich (protected by tax havens free of serious challenge) in the developed world is happening and will worsen.

    Scotland on its own might or might not be better off depending on the "divorce lawyers" and the division of assets (sic) and more particular the debts, but its always a good rallying cry to divert the attention of the largely neutered electorate.

    A focus on quality education, hard work, longer working life, shorter holidays, (2of last 3 at least !!) infrastructure investment, red tape slashing etc will help in the medium term. We are already competing in a global market place with cost price per unit of production / unit of service are the driving factors of where growth will happen. A sharp wake up call is ringing.

  • Ovidio G.

    Ovidio

    Ovidio G.

    Performance Analyst at The Co-operative Banking Group

    Jim, you are totally right. Where are the money coming from though? Which leadership should guide this new process? Brian is right when saying that everything is focussed around the City.

    Almost 1trn pounds of public and QE money has been poured into the economy since 2008 and bear in mind just too keep the status quo - these money invested will hardly give any return, it was just a huge injection of public money to keep things as they were, before everything degenerated.

  • Gary T.

    Gary

    Gary T.

    Chairman at Bankcoin Reserve - Bankcoin Bitcoin Gold

    Great comments, Ovidio solid comment my friend.

    Gordon the question then is why can't the population stimulate growth which is simple there is no investment in the opportunities those of us in that position create. We need a new industrial and energy vision in the UK absolutely agree the issue then becomes is it a private or public sector conversation in relation to timelines it has to be without question a private sector issue where they can for once do the right thing and at the same time profit. You can have both if the equations are balanced. It's one conversation with the right people with the right mindset for it to happen on the ground at the end of the day the UK is but 1 of the 196.

    Brian it's only been like that because no one has had the vehicle to be able to sit down and have a conversation about it. This is what it is this is what it does and this is where it is going to go. If the private sector finance and banking boys haven’t figured out yet that we have to get back to making things then it's prolly lights out. Unless some genius out of Harvard or the likes come up with yet another ponzi scheme

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