Thursday, 9 October 2008

thinking critically

i have to say that i'm feeling pretty lucky about now. i don't own shares, bonds or options in any companies, so i don't have to worry about the stock market. i don't have a mortgage with any bank, nor do i ever buy goods on hire purchase or other credit schemes. i have my visa bill paid in full by direct debit on the due date. so i don't have to worry about interest rates. i'm not planning to go overseas any time soon, nor do i have a business which requires goods to be imported. so i don't need to worry about volatile exchange rates. i have a secure job, and know that as long as there is a tax system, there will be a need for accountants.

i can basically watch events in the financial world with a somewhat detached serenity. yes, i'll be affected by rising prices, but this will be partially offset by tax cuts and changes to working for families. the only worry and tension i have relates to my concern for others who won't be so well-buffered from the economic downturn.

i know that some of the damage people face is self-inflicted, in that they have made choices to take on debt for consumption or investment. some of it is cyclical, in that the economy moves up and down and we're currently going through a rather bad patch. much of it is due to the deregulation of financial markets and the movement of global capital which made it possible, for example, for foreign investors to borrow cheaply at home and invest at much higher interest rates here.

the british, european and american governments struggle to halt the slide by pumping taxpayer money into the financial system. federal banks are slashing interest rates. but nothing is working.

i wonder how long it will take for people to realise that some fundamental changes need to made to the way financial systems are run. i don't know that anyone will be brave enough to make drastic changes. like doing away with the futures market, which is pure speculation and adds no value whatsoever. like some solid protectionist policies around national assets, to prevent local governments being held hostage by prowling multi-nationals and investment funds. like some solid incentives to invest in productive rather than speculative assets.

the latter reminds what a stupid decision the national party has made in deciding to scrap R&D subsidies and the fast forward fund. this is precisely the kind of expenditure that will lead to solid growth based on production. in the current economic environment, to forgo incentives and funding for research is about as bad as it gets.

although really, we do need to be going a lot further. we need to start questioning a lot more of our basic assumptions. but we've unfortunately not been taught to be particularly critical in our thinking. a lot of our education has been based on preparing us for the workforce, for paid employment rather than critical thinking. and much (though not all) paid employment rewards those who are able to follow instructions and toe the line. it doesn't reward those who question and challenge authority, so we get out of the habit of doing so.

current times require that kind of thinking to provide us with better options. one of the issues that no-one is much talking about from treasury's fiscal update this week is the predicted rise in umemployment. we've been too busy talking about tax cuts (yes, i know, guilty as charged!).

if the unemployment rate rises, we need more money to pay for those on benefits. and we need to ensure that those benefits are enough to live on. i raised that issue in another context yesterday, at the hand mirror. i think it needs to be raised in a wider context. we know that unemployment has flow on effects in terms of crime, poor health and poor education. if we want to ensure that 10-15 years from now, we don't have another generation on children raised to think of themselves as failures and outcasts from society, we must make sure we have enough money for those who are going to lose their jobs in the next 3-5 years.

at the same time, the tax take will be down, so how will we pay for this? higher government debt at a time when credit is expensive is not a good idea. forgoing tax cuts or raising the top tax rate (say for those earning over $100,000) will be politically impossible given the focus on tax cuts these days.

it's something we need to be thinking about, but not many people are. because we always assume that it won't be us who loses our job. it won't be us who gets hit hard by circumstances. we live in that false sense of security, thinking that the worst of it will pass us by. i say it's time to be realistic, and to think about providing properly for those in need, if for no other reason than that one day soon, that might be you.

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