Sunday, September 28, 2008

Economics Anyone?

I am almost ashamed to admit it but my university major is in Economics, the dismal science.
It really came about by default. At school I loved languages and wanted to teach them. I was hopeless at Sciences (we only had Physics and Chemistry, later in life I developed an interest in both Biology and Geology). Therefore in senior high school I studied English and the basic Maths, French, German (I had studied Latin in junior high but found it hard) and took up Economics and Geography rather than Science. My best subjects in the final state run exams were French and Economics so in my first year at University I took French, German, Economics and Psychology.

Disaster struck as I failed both languages but passed Economics and obtained a credit in Psychology (which persuaded my Father that it was worth my continuing). Teaching languages was no longer an option so I picked up Geography and later History to go with the Economics. I loved both these subjects but it was too late to major in them so my degree majors were in Education and Economics.
On arriving at my first teaching post, I discovered they needed a Geography teacher rather than an Economics teacher and so the result has been that, I think, I have only taught Economics in 4 or 5 of my 40 years of teaching.
Having explained all that I hesitate to continue with this post as I know enough to know how much I do not understand and how complicated it all is.

However I have always been a socialist and probably many Americans would consider me a communist. My parents went through the Great Depression and I really believed that by Government regulation to modify the economic cycle, we could avoid future depressions and only suffer occasional recessions when actions to slow a boom were a bit too severe or too late. Of course, I saw this view going out of favour as many economists seem to swing back to the laissez faire, free market beliefs that I was taught had brought about the problems of the 1890's and 1930's. Economists have instead been suckled on the dictum that markets will arrive at the correct outcomes, markets do the regulating. Now we are seeing that free marketeering is really nothing but an excuse to avoid social responsibility. As one commentator wrote this week "Old fashioned socialists must be dusting off their manifestos." I feel slightly vindicated.

Thankfully I live in a country which does have a more centralised and better organised regulatory regime than the USA but it has still followed the trajectory of less regulation for many years. We are told that our major banks are in a much better position and will be able to withstand the problems now occurring. Our Government is putting money into buying mortgages from the smaller non-banks in order to maintain competition as they find it difficult to obtain funds on the world markets which will allow them to compete with the 4 major banks. At least our Government has been running a surplus for many years so can make the funds available to do this without going into debt.

I have also been horrified as both major parties have just offered more and more tax concessions at each election. People were sucked in by these offers then did not see the link to the rundown of government services in health, education and transport.

The irony is that this crisis is occurring now when I am more vulnerable.
Recessions did not frighten me as working in education meant my job was secure. I learnt from my parents to avoid debt wherever possible. My parents gave me my first car for my 21st birthday, I chose it rather than have a party. However, the car being 10 years old I traded it in on a new station wagon just 2 years later and got a loan to do this. I again obtained a loan for the next car - a Kombivan about 3 years later but since then have kept each car 10-15 years and always paid cash.
I borrowed heavily for my first apartment but 6 years later purchased a 3 bedroom house on an acre of land for slightly less than I sold the apartment. However it is 80 km from the city and I spent over 4 hours a day travelling to and from work (by train) for 9 years. In the 80's I was told I should borrow against the house like everyone else was doing at that time but I remembered my mother saying that making that last payment and owning one's house was the best thing ever. Being unencumbered allowed me to take casual work and study for a career change in the early 90's.

I realise that if everyone was like me the economy would slow. I still have the refrigerator I bought 33 years ago, the bed I bought 30 years ago and the second washing machine in 33 years only because the first broke down completely. I did not own a television for the first six years of homeowning and no lounge suite for a few years (I still have it) I have spent a lot of money on establishing a garden and as you know I love travel. I also update my computer regularly. However I do not understand why young people today move into their first home and have to fully furnish it immediately.

I have only dabbled in shares to a very small extent but did invest in superannuation. Since 1992, it has been compulsory for all Australian employers to put 9% of wages into an employee's superannuation fund. I had a small amount before then and for a number of years put up to 20% extra into the fund.
The idea is I will not be dependent on a government pension when I turn 65 next year although I should be eligible for a health card.
Of course until half way through 2007 the fund was growing at over 12% p.a. despite my beginning to withdraw from it since 2005 (delayed about a year due to 9/11). Thankfully I moved it from 74% to 50% growth assets (mainly shares) in December and as I saw it still go down by $1,000 per month moved it further to only 32% growth in April but last Tuesday I discovered I had lost $4,000 in one week and am waiting nervously until next Tuesday for the next report.

So naturally as people talk about a possible Depression in the USA I am keen to see the US government do something to arrest the crisis. When a ship goes on the rocks because of the Captain's poor navigation, you cannot waste time telling him what a fool he has been, do that later, you have to start bailing.
I realise now that the first bill was inadequate and needed modification but hopefully something will be done in the next day (before the Australian Stock exchange opens 14 hours ahead of New York). It will look like it is assisting the reckless fools who got us into this mess but unfortunately in a free market economy ordinary little people suffer as well. It would be nice to think that lessons are being learnt but experience tells me that is unlikely.


Fran said...

I don't even know what to say - I feel like I am the child of very reckless and feckless parents, as an American and I feel shame.

It is interesting to see how you have chosen to live. I see wisdom. My own financial life is a mess.

The apple does not fall far from the tree and I have made poor choices.

Although recalcitrant as ever, I find it hard to regret the trips I took.

Brian R said...

Now I feel guilty for my post. I have spent money unnecessarily at times, plants that have died and books (not always "good" books) come to mind and yes travel is wonderful. I am sure you have many other virtues Fran. I think you portray in your posts a more loving and gregarious nature than I.