Forman & Field managing director Lance Forman simplifies the economy
- Credit: Carmen Valino - on shift
It’s never a good idea to start a paragraph using the acronym ‘Libor’ if you want people to read on, but I like to live dangerously. A survey was undertaken recently where the public were asked whether they believed the banks misbehaved in fixing Libor. Something like 90 per cent said ‘yes’. The next question on the survey asked whether they knew what Libor was. Most didn’t! The problem is most people have a good sense of what is right and wrong, what we need and don’t need, but economic jargon; debt, deficits, triple A, triple dip, growth, austerity, simply switches people off.
The economy is less complex than it may seem. Everyone agrees that what we now need is growth. It is undisputed. What is disputed is how to get that growth. It can either be private sector growth; in other words, you and I spend more; or public sector growth, where the government spends more. But, what we always seem to forget is that the government doesn’t have its own money, it’s yours and mine. So in the end, it’s either you and I spend more, or… you and I spend more.
The key difference with having the government spend our money is that they choose what to spend it on and how much to spend rather than allowing us to make these choices. So the key question in all of this is which is better for the economy?
When you break it down, there are only four possible ways to spend money. You can buy something for yourself with your own money; you can buy something for other people with your own money; or you can do either of these two with other people’s money.
When you buy something for yourself, you are likely to be very considered, careful to purchase exactly what you want and ensure you get the best value. When you buy something for someone else, perhaps a gift, you’ll still be likely to ensure you spend wisely but will be less concerned about what to get and actually it may be better to give them the cash so they can choose what they really want themselves. If, on the other hand, you are given money to spend on yourself, you might be less careful about the value than if you had to earn it, but will still choose well, perhaps a luxury rather than a necessity. But, where you are handed other people’s money to spend on other people, you’re going to be least concerned about both the cost and what to get. Unfortunately, the last example is how government spends.
If the Government really wants to kick-start the economy, it’s very simple. It should cut spending our money now; it should reduce taxes, now, so we all have more money in our pockets and then let us, the public, decide how to spend that extra money ourselves.
I think Libor is something to do with borrowing … Less Is the Best Option Really.