What the future holds - essay material

When you have made all your points, explained them clearly and done full evaluation, then you might want some big-picture material to impress the examiner with your knowledge of the wider context. I sent you this last September, but it is still very current:

When the money runs out?

Stephen King, group chief economist of HSBC, a banking giant, has written a book, 'When the Money Runs Out: The End of Western Affluence,' that was published in the early summer. It raises relevant issues and of course, a bank economist has to avoid some sensitive ones.

The author acknowledges that in a paper currency system, the money in a narrow  sense may never run out but he argues that the ability of the developed world to generate significant economic growth, and thus wealth, has declined. He highlights that in the first four decades of his own life real British incomes per head almost tripled; in his fifth decade, they rose just 4%.

In an op-ed piece in The New York Times on Monday (the reader comments are also interesting), he wrote:

"The underlying reason for the stagnation is that a half-century of remarkable one-off developments in the industrialized world will not be repeated.

First was the unleashing of global trade, after a period of protectionism and isolationism between the world wars, enabling manufacturing to take off across Western Europe, North America and East Asia. A boom that great is unlikely to be repeated in advanced economies.

Second, financial innovations that first appeared in the 1920s, notably consumer credit, spread in the postwar decades. Post-crisis, the pace of such borrowing is muted, and likely to stay that way.

Third, social safety nets became widespread, reducing the need for households to save for unforeseen emergencies. Those nets are fraying now, meaning that consumers will have to save more for ever longer periods of retirement.

Fourth, reduced discrimination flooded the labor market with the pent-up human capital of women. Women now make up a majority of the American labor force; that proportion can rise only a little bit more, if at all.

Finally, the quality of education improved: in 1950, only 15 percent of American men and 4 percent of American women between ages 20 and 24 were enrolled in college. The proportions for both sexes are now over 30 percent, but with graduates no longer guaranteed substantial wage increases, the costs of education may come to outweigh the benefits."

King makes a plea for "economic honesty, to recognise that promises made during good times can no longer be easily kept."

He proposes reforms such as raising pension ages, increasing immigration in ageing societies and a social pact where an older population does not cannibalise benefits at the expense of the young.

The economist also recognises that rising inequality is part of a process that feeds mistrust within nations.

Stephen King writes in his book:

"Based on our collective belief in ever-rising living standards, we have spent the last half-century watching our financial wealth and our political and economic 'rights' accumulate at an incredible pace. We all, directly or indirectly, own pieces of paper or rely on political promises that make claims on future economic prosperity. Only a handful of years ago, we were so confident in continued economic progress that we could be educated yesterday, consume today, retire tomorrow, have excellent healthcare the next day and create a better life for our children while, at the same time, saving very little. We hadn’t just mastered our economies. We had mastered time itself.

What happens, however, if the future is worse than we hoped it would be? What happens if, collectively, the claims incorporated in our pieces of paper and our political promises cannot be honoured?"