Category: Politics

Our poor knowledge on Economics

I was recently reading an article on an economics blog about the multiplier of public expenditure on GDP (Gross Domestic Product) which aimed to show Portugal is not under a recessive spiral.

I realized that for many people in Portugal, as well as in the whole world, this whole sentence may have a very obscure, undecipherable meaning. With this, I mean the lay person knows very little or nothing about Economics. For instance, I have a superficial understanding of what GDP is and what a recession is. However, I did not understand what a multiplier was and I still do not have a good level of comprehension of it. From what I understood, it is a coefficient that may descibe the relationship between economic variables, whatever they might be. In the aforementioned case, this multiplier would describe the effect of public expenditure manipulation on GDP.  My point is not exactly we should know what a multiplier is, for I think it is a very complex concept. I have searched for it on several websites and I did not find a clear explanation of it. But I think we should have a basic Economics background that should guide us throughout our lives. We are economic agents: we have a financial income, spend money on economic activities of our choice, thus shaping the market; we can eventually save money, invest it in savings bank accounts, which will be used by the banks for loans to other economic agents. We should have an idea of how wealth can be created through the circulation of our money. Also, the governments we vote for choose how to shape a country’s economy in order to maximize our well-being as individuals and as a society. How can we vote in any government model, presented by alternative parties, if we don’t know what Economics is and how the State can manipulate it? I feel we currently vote in political projects we cannot understand. In this setting, we do not know what we choose and an uninformed choice is not democratic enough for me.

In Portugal, Economics is only taught to Economics specialized students in high schools and in college, nothing else. No other people have contact with even the most basic Economics concepts. Yet, in other countries, like the United States, the United Kingdom, Australia and India, Economics is taught at schools to all children, in different ages. Well, let’s follow their example in order to educate citizen who will be more informed about their future political choices. This policy could only leverage our degree of citizenship.


Corruption, the cancer of any human society

Here I am writing about one of the phenomena I hate the most in human societies calling themselves developed. Actually, one interesting thing is that the Corruption Perception Index and the Human Development Index seem to be related. The countries on top of both are somewhat the same, New Zealand, Australia, Norway, Sweden, Canada. Ireland seems to be the exception making the rule, ranking in 7th in terms of human development, despite being placed in the 26th place in the Corruption Perception Index.

“[Corruption] is one of the greatest obstacles to economic and social development around the world.”

World Economic Forum


I viscerally hate corruption. Now we are recurring to the World Economic Forum, corruption amounts to 5% of the global gross domestic product. Saying this in another way, 5% of the wealth produced worldwide is absorbed by people who deviate this wealth to benefit themselves, their family or their friends, at the cost of the public, widespread welfare.

Needless to say, in the most corrupt countries, the political effort towards transparency in every public policy is the least, for corruption is immensely pervasive in these societies. This is a hard struggle, but I still uphold it is the most important one on the road to human development.

The employment problem in Europe

Let’s face the facts. Unemployment rates in European countries are way high at this time on average. Even though we have countries like Germany and Austria, with unemployment rates below 6%, the average in the UE is 10.7%, with emphasis on the top 5: Spain (26.2%), Greece (25.4%), Portugal (16.4%), Ireland (14.7%) and Latvia (14.2%). The UE summation gives us a total of around 25 913 000 people unemployed. It is indeed a lot of people that live such a drama of feeling useless to a society and also incapable of making a living as a result of their professional skills.

I think this is not only a problem of the present. It is a problem of the past and it will also be a problem of the future, the near and the far one. It is a long-term challenge with, I would say, a lot of reasons. But the crisis just made the challenge more striking.

First, there is a general problem worldwide that comes with lack of transparency – i.e. corrupt practices -, which is the political protection of several groups of interest with no market outside the State. The State invests in their services, they keep functioning while the State has a financial viability. Since the State is usually a secure guest, these companies can grow and get expand, having eventually more employees. With several financial crises affecting the Euro-zone in particular, the States, having lost their financial viability, lose the ability to protect these groups of interest. As a consequence, these groups go bankrupt, for they were always totally unprepared to face a real market. The end result, as you may imagine, is massive unemployment. The construction bubbles in Spain and Portugal are prime examples of these protective policies, which, on the long run, revealed a dramatically wrong strategic investments in these countries.

Second, the technological boom of the last… 20 years, let’s say, brought a lot of people to unemployment, because a lot of jobs done by humans are now done by machines. We can gather a lot of examples, especially in the domain of the agriculture, fishery and industry.

These years faced a tremendous change in demands for the market, which means change in job demands, and change of skill demands. Europe is not a continent of the low-specialized jobs, on the contrary. The jobs in technology and innovation, research and development and others have risen a lot in demand lately. However, this rise does not seem to be enough so far. Also, these jobs demand a lot of more qualifications and a much higher degree of scholarship than most of the jobs we had 30 years ago. And this job market shift was not followed by a cultural shift. The notion that you study a lot, you get a degree, then you get a secure job for life is out of date in a developed country. There is a lot of people like yourself, so you need way more than a degree. You need to work a lot and well, or someone else will replace you. You now face the same problem being a teacher, a researcher, a lawyer, a police officer, a call-center operator or a trash bin collector. Your job is not safe anymore, you have to fight for it every single day.

Finally, there is an additional point I would like to make, which is educational. Are we ready for this market coming? Because it seems that the only constant in job market is change. Yet, most of the educational systems, from high school to college, work on the idea that you attend them in order to acquire the necessary skills to perform a job on a given domain knowledge. You practice the skills repeatedly until you acquire them. You memorize the concepts until you remember them. Then, yes, you are ready for the job market. Probably, some of the students will be educated today for jobs that will vanish in the next 10 years. What will happen then? Will they get another degree?

Perhaps children should be educated in order to be more creative. They will really need creativity for the future job market. We need new companies, new jobs, new products, new solutions. They will face many jobs, in which they will need a lot of different skills throuhgout their whole careers. Otherwise, the humanist European model may disappear with such a lot of unemployment.

Back to Socialism vs. Capitalism

Ah, one of the top classical socio-political discussions. Is socialism outdated? Has capitalism proven to be invalid?

Well, I don’t know. Some late historical events are relevant, however. We can say that socialist systems are flawed and seem to be unsustainable on the long run. USSR has collapsed in the cold war, Cuba is on a bankruptcy-like state – even Fidel Castro himself has admitted the flaws of such a system. The gigantic state seems to be unsustainable. Let’s see what will happen in Venezuela. Ah, and, of course, China’s communist system doesn’t count. On the other hand, the free market capitalist model, based on heavy private initiative and a very skinny State, has a lot of problems. This belief that the market can be self-controlled without any supervision from the State has been proved wrong with this terrible subprime crisis. The thing is that both socialist and capitalist systems have lead to bankruptcy of states, but there is more acceptance by the international community of capitalist countries than of socialist ones. Why is that? I guess there was a general impression, especially in the western countries, that capitalist systems bring more quality of life to the generality of people.

With this crisis and the austerity measures, I think this notion is changing. There was, especially in Europe, no real left-wing oriented government until very recently, when François Hollande was elected President of France. I must say this guy is extremely brave. He brought back the idea that the richest people should pay much more taxes than the poor to decrease inequality. And he really took action, by taxing in 75% the people which income is over €1 million annually. Most of the French population loved it, and I also did. I even made the calculations to see whether it was too much. With this taxation, a person earning €1 million a year would get around €10,000 a month after taxation. At first, I thought “Yeah, that is a very decent income, come on!”.

The capitalists always argued that these rich people would leave the country and I guess most of the people disdained this argument, as well as I did. Now I have just seen that Gérard Depardieu, who lived in Lille (France), has just moved across the border to a village in Belgium, because they only tax 50% of his income. Bernard Arnault – who owns LVHM, which controls brands such as Louis Vitton – did the same. And so did a lot of other Richie Riches previously living in France.

Bastards. I cannot believe these guys will run away in such an extent that the overall income can decrease. Let’s wait see… but I don’t want to believe it. If the overall tax income reduces, this tax increase is totally counter-productive and France will pay for this.