Tuesday, 22 September 2009

Balancing the books

As the UK attempts to recover from the recession and prepares for the coming elections, there seems to be a focus on reducing expenditure supposedly to balance the books. The government, including local government seems to have spent more than it has earned. Admittedly, there may be some waste in the system but with the government having had to bail out banks because of bad debts, I would have thought there would have been some warning bells that suggested that something is really out of balance in the economic accounting.

As I understand the cause of the current recession, it related to the defaulting on high risk debts. If the government removes a large chunk of its expenditure or endeavours to balance its books by increasing taxes then surely this is going to put more pressure on those struggling with debt.

The government in its bid to reduce costs makes more people redundant. This shifts the cost from the government's operating bill but increases the social welfare bill. The savings may exceed the increased cost from an accounting perspective but what is the social cost to society caused by increased unemployment. At what point can a government say these things are needed and we need to inject capital or credit into the system to bring it into balance?

People need to live. They need shelter and food. Can this social responsibility be ignored simply so an accounting equation can be brought into balance? It seems to me that the foundation of our economic system is faulty and that the balancing equation isn't one of balancing need with available resource. Rather some monetary figures that don't reflect the needs of society seem to be dictating the way governments and society behave.

I am not advocating unlimited expenditure. Rather I am asking whether the method used to decide whether the government's books are in balance be re-examined. The solution to all problems seems to be increasing income (i.e. increase taxes) or reduce costs (laying off workers or reducing services). Certainly services need to be examined to determine whether they are still needed but I am not convinced that the proposed slashing of costs is based on accessing the need for services. I am not even against charging for services especially when a service isn't a necessity.

I would like to hear the government talking about accessing the need for services rather than a need to balance the books by reducing services. All that will happen is that there will be a reduction of services that will be reinstated when either the economy improves or when there is enough political pressure that the politicians see it as necessary in order to be re-elected.

What I see is that monetary issues are dominating the decision making and not clear thinking about what is required for the people to foster a balanced society.

Monday, 14 September 2009

Creation and Evolution

I have been thinking about whether evidence of evolution is proof that creation never happened and whether this means there is no God. My conclusion is that the answer depends on the frame of reference of the person when gathering evidence and presenting an argument. What do I mean?

Evidence for evolution seems to be that there is some identifiable evidence for a progression in development. I would argue that we can see such evidence in the human designs such as houses, cars, computers, clothes, etc. Human understanding of what is possible is revealed through the products that have been developed. I doubt whether there is anyone who would argue that such designs evolved without a human designer / creator. This is because our conception is that these items are designed and not naturally occurring in nature.

If an outsider were to visit this world without meeting humans, what would they conclude? Would they argue that on the evidence there must have been an intelligent designer of these artefacts or would they see the evidence of evolution in these artefacts and argue that they must have evolved without a creating influence. Surely this will depend on their perception of what the evidence is reporting and what they perceived as the evidence for creation.

I contend that the evidence for evolution doesn't rule out a creator / designer influence. There is the argument that says who put the rules in place by which natural selection occurs? Are they simply random rules or is there some order to them? It is my belief that there is evidence of some order to those rules. They are not chance creations. From my perspective, evidence for evolution is not evidence against a creator influence. It simply shows that the process of creation may have occurred over an extended period of time.

The difficulty is with the perspective that takes Genesis 1 literally, that is God created in seven days. Is that what the author of the passage intended to communicate or was the intent to communicate seven phases of development or may be simply that God created. Again, this is based on the perception of the reader of Genesis. This perception will influence what evidence is acceptable or unacceptable as proof of creation. A narrow focus of God creating in seven days means that evidence of development over a longer period of time rules out creation but I have a problem with that perspective.

To me, the Bible talks of God's developing relationship with man. That relationship develops and changes throughout the Bible. God didn't create humankind and say this is how I am or this is what I want you to be. The Bible seems to show a development in humankind and his relationship to the world and to God. This seems to say to me that God is more interested in evolutionary development rather than big bang creationism.

Just as human creation shows signs of evolution, I am willing to accept that God's creation would also show signs of evolution. This means that I don't see evidence of evolution meaning that creation has not occurred or that God does not exist. The more I observe the natural world, the more I see evidence of design and no chance development. There is too much order to be some chance production. Just as I would never argue that buildings or cars were created by chance, I wouldn't argue that the natural world is a chance evolution.

Since it is not possible to go back to there being nothing (i.e. creating out of nothing), I can't see whether there can be evidence that would convince me that evolution was possible from a point of there being nothing if there ever was such a point.

Wednesday, 9 September 2009

Recession will happen again

The BBC reports that Alan Greenspan, the former Federal Reserve chief, as saying the financial crisis “will happen again.” Their web article concludes with the statement "It's human nature, unless somebody can find a way to change human nature, we will have more crises and none of them will look like this because no two crises have anything in common, except human nature."

Is it really human nature to assume that human created financial systems can't be changed and that we are not able to learn from past failures and make transitions to new systems that don't have some of the same flaws? I will accept that human knowledge is incomplete but I don't accept that we can't learn from failures. However, we do seem to be blind to faults in our financial systems. The solutions may be more difficult to resolve.

As I reflect on the economic system and the issues that have led to the recession, I am forced to consider some of the equations that might relate to its operation. I recognise that I am not attempting to model every aspect of the economy but there seems to be some fundamental requirements that are not satisfied by the current system.

In order to be able to sell all product that is produced and to avoid production for waste, the available product for purchase should not exceed the available purchasing power. The basic assumption is that the market should be able to purchase all production. If production exceeds the purchasing power then either product is being manufactured to waste or prices have to decrease.

However, there is a fundamental principle of cash flow is that for any economic entity and that is that the cash in has to be greater than or equal to the cash out. As a general principle, the amount received from the sale of product should exceed the costs of production. Part of the cost of production is wages, salaries, and dividends; the primary source of purchasing power.

All economic units endeavour to live within their income but income is related to what is produced. If the income is inadequate then the economic unit must borrow. Borrowing is simply a mechanism for redistributing purchasing power. This means that there has to be economic units whose income exceeds their spending.

Borrowing comes with a cost (interest) that increases the outgoing cash flow of the borrower. Consequently, the borrower seeks to increase their cash flow to ensure that they cover the increased outgoing. The interest charges reduce the borrower's purchasing power and increase the lenders.

Anything that upsets the balance between available purchasing power and available items to purchase is going to cause problems with the economic system. If an economic unit is unable to cover their outgoings then there is going to be an imbalance in the economic system that will need addressing. If that is addressed with further costs then that puts extra pressure on the available purchasing power. The result is recession and financial collapse.

The solution is some fundamental changes to the way that we think about economics and our understanding of a just economic system.