Jump to content
House Price Crash Forum
RJG18

Why House Prices Are Now Irrelevant

Recommended Posts

Another thread, started by ‘Mopo’, has made me realise my standpoint on the whole house price debate has substantially shifted recently.

I’ve been posting on this site for a couple of years now. I started with a viewpoint of being angry about housing affordability and the fact the majority of the population could grasp the market economics that would make a property crash inevitable, but the more I researched over the past few years and the more I’ve read have lead more to the conclusion that property prices are no-longer an issue. They are not an isolated factor, and the boom, followed by guaranteed bust, is merely one of many barometers indicating something much more serious… at best deep and sustained economic depression and at worst social and economic collapse.

Most people get by in their day-to-day lives by not knowing or understanding this. And those that have it pointed out to them refuse to accept it. Deep, deep denial, which will cause the majority of people who read this to form the opinion that I am some sort of melodramatic, hysterical crackpot/doom-monger for even suggesting it. But the economics of the western world have got to a point where it really doesn’t matter what property prices do. We all lose either way.

This is actually one of the reason why I don’t post much on here anymore. (I remember ye olde days in which I could spend 4 or 5 hours a day posting on here). It was fun, with the sort of comments like: “Hey, lovely house up the road from me is on at £300,000. After the crash I reckon I’ll pick it up for a bargain of £150,000”. But you come to realise that such posts completely miss the point. The very factors which caused the boom and bust in prices will ensure that the price you can get the property for will be almost irrelevant against such an extremely bleak economic backdrop.

As a nation we are already effectively bankrupt. FIAT currency, fractal reserve banking, balance sheet accounting, and mismanaged money supply, along with falsified inflation and interest figures, have pretty much corrupted any true underlying concept of money as an accurate or correct representation of wealth or value. The lack of genuine value-generating industry and innovation means our supply of wealth is not sustainable. This comes both in the form of speculation on non-value generating assets (e.g. property) in favour of investment in real value-generating industry; the massive growth of debt (and non-value-backed money); the unsustainable growth in public-sector overhead (and our nations dependant on this to prop up the economy); and our nations attempted dependence on a “Service-based Economy” (which is by definition doomed to failure).

I’d like to pick up on that last point a little further. Both the public-sector and the “Service industries” cannot generate wealth, they can only exist on the surpluses of other, genuine wealth-creation. Here’s a good example to illustrate it:

Quit your job. And get your next door neighbour to do the same. Then, instead of working at what you both previously did, instead pay each-other to cut each-others lawn. Really, try it, see if it works. You pay him £500 a week to mow your lawn, and in return he can pay you £500 a week to mow his. This is a very pure service-based economy. But no one is producing anything of value, hence there is nothing to fund anything. You can’t build an economy on trying to sell services to each-other, in exactly the same way you can’t get rich (or make any real money) by simply selling houses to each-other. In this simple example, what you need is a third person to produce something of value, to support the service-economy out of it’s surplus. For example, a third neighbour might manufacture food for a living, and (through efficiency and modern processes) produce three times more than he needs for himself. So he keeps the bit he needs (or in the real world the part of his salary that he needs which he has earnt through producing his product of real value) and with what’s left he can use the surplus to pay you (and your neighbour) to mow his lawn. Some of this money you will use to buy food off of him, and whatever is left may be further exchanged for more goods or services.

This is how the service industry and public sector works. It can only exist on the surplus value of genuinely wealth-creating industry such as manufacturing or farming. For the service industry or public sector to grow, you must either have continual improvements in efficiency (i.e. the farmer in our examples uses new technology in order that he can now produce enough food surplus to feed 6 people rather than 3, hence supporting more non-value-generating jobs), or growth in the volume of such industry. However, where we currently are in the UK is that we are trying to grow our public sector and depend on a service-based economy, while constantly shrinking our genuine industry. This is a 100% guaranteed formula for economic collapse.

Play the computer game “Sid Mier’s: Civilization II”. It will sum up how it all works quite nicely.

Phew, bit of a diverse rant there. Exec Summary: We’re doomed; house prices now largely irrelevant; deal with it.

Edited by RJG18

Share this post


Link to post
Share on other sites

Surely that is the purpose of inflation though? You dont need to generate income if you inflate your currency. As long as no other country realises so you can still buy their goods for peanuts.

A different story when other countries realise your paper money has no basis. Pretty much like what is happening now.

Share this post


Link to post
Share on other sites

I agree with most of what you say, I've also really enjoyed the posts you've made.

What you are saying here is very true.

I have moved on now from "When/If", to "How can I protect myself in the coming bust."

I don't think the HPC website is any less relevant, it has definitely helped me to understand more of the current situation, and I hope it continues to be a beacon of economic truth amongst all the spin.

I'm now focusing on wealth preservation, looking at investments in Gold, Commodities, Swiss Francs.

Anything that doesn't deal with property, consumer spending and most paper currencies.

I'm keeping my eyes on the housing market, but from what I can see it's completely stuffed, along with the British economy.

The focus is now on the opportunities that the coming bust will present.

Edited by BandWagon

Share this post


Link to post
Share on other sites
Surely that is the purpose of inflation though? You dont need to generate income if you inflate your currency.

I'm hoping/assuming that comment was meant to be a bit tounge-in-cheek. All that inflation actually does is simply increase the volume of currency in circulation, hence decrease the true value of each unit of currency, and so proportionately increase the price of goods and services to reflect this, hence (with some time lag) increasing the wage demands of the workers. No true wealth is generated.

Share this post


Link to post
Share on other sites
The focus is now on the opportunities that the coming bust will present.

Indeed, and as long as you can protect yourself during the bust there will be plenty of opportunies. The key to it will be "value investing". A simple concept which has generated the wealth of some of the worlds richest people, inclduing Warren Buffett and John Templeton. Basically, by value-investing you only buy an asset which is priced below it's true underlying value, for example the price of the asset is lower than the potencial real wealth it can generate over an acceptable period of time, which will not only generate you those earnings but also lead to an upward correction in the price of the asset.

It sounds simple enough, but the majority of participants in any market will neither understand nor practice it. For example, anyone who comes out with something like "Sure, property is very expensive and is overpriced, but the price will keep rising so I'll make money from buying it", has entirely missed the point. You never Value-Invest by buying something that is over-priced in the belief that it might become even more overpriced, whatever either the market factors or external factors are that lead you to believe this. This will mean that you don't participate in short-term booms and high but tempoary paper-profits of whatever the latest fad of the day is. Instead, it gurantees (more or less) that you will make slower, but safer and more sustainable profits over time, which will compound to form a much greater return over a period of time.

If you take property as an example, the time to value invest in property is certainly not now, and not when prices have fallen a bit, or when it looks like a bargain. It will actually be at the point when it DOES NOT look like a bargain, but rather that prices have fallen so far that it is commonly accepted knowledge that you would have to be mad to invest in property, where everyone knows someone who has lost a fortune to(and maybe their own home) to falling property prices. Wait until every fibre in your body resists you buying the cheap property, when people (everyone!) tell you that property is a mugs game. That's the time to buy.

That's what John Templeton dod after the 1929 crash. Waited until many of Americas leading company's stocks were reduced to junk value, and everyone knew that stock marcket investment was a mugs game. At that point pretty much all of the stocks were undervalued (valued below the companies abilities to generate earnings). So he bought some stock in ALL of these companies for very little money. Sure, some went under, but most didn't, and went on to recover their value over time, to a point where they were fairly valued again. This capital growth, along with the earnings, and the ongoing reinvestment of these profits to the same principles lead people like Templeton and Buffet to be some of the richest men in the world.

Share this post


Link to post
Share on other sites
I'm hoping/assuming that comment was meant to be a bit tounge-in-cheek. All that inflation actually does is simply increase the volume of currency in circulation, hence decrease the true value of each unit of currency, and so proportionately increase the price of goods and services to reflect this, hence (with some time lag) increasing the wage demands of the workers. No true wealth is generated.

I'm going to enjoy watching the return of inflation.

Not because of the damage it may do to my wealth, but to the sense of reality that will return when we see more natural (+-6%) levels of interest rates.

Share this post


Link to post
Share on other sites
Another thread, started by ‘Mopo’, has made me realise my standpoint on the whole house price debate has substantially shifted recently.

I’ve been posting on this site for a couple of years now. I started with a viewpoint of being angry about housing affordability and the fact the majority of the population could grasp the market economics that would make a property crash inevitable, but the more I researched over the past few years and the more I’ve read have lead more to the conclusion that property prices are no-longer an issue. They are not an isolated factor, and the boom, followed by guaranteed bust, is merely one of many barometers indicating something much more serious… at best deep and sustained economic depression and at worst social and economic collapse.

Most people get by in their day-to-day lives by not knowing or understanding this. And those that have it pointed out to them refuse to accept it. Deep, deep denial, which will cause the majority of people who read this to form the opinion that I am some sort of melodramatic, hysterical crackpot/doom-monger for even suggesting it. But the economics of the western world have got to a point where it really doesn’t matter what property prices do. We all lose either way.

This is actually one of the reason why I don’t post much on here anymore. (I remember ye olde days in which I could spend 4 or 5 hours a day posting on here). It was fun, with the sort of comments like: “Hey, lovely house up the road from me is on at £300,000. After the crash I reckon I’ll pick it up for a bargain of £150,000”. But you come to realise that such posts completely miss the point. The very factors which caused the boom and bust in prices will ensure that the price you can get the property for will be almost irrelevant against such an extremely bleak economic backdrop.

As a nation we are already effectively bankrupt. FIAT currency, fractal reserve banking, balance sheet accounting, and mismanaged money supply, along with falsified inflation and interest figures, have pretty much corrupted any true underlying concept of money as an accurate or correct representation of wealth or value. The lack of genuine value-generating industry and innovation means our supply of wealth is not sustainable. This comes both in the form of speculation on non-value generating assets (e.g. property) in favour of investment in real value-generating industry; the massive growth of debt (and non-value-backed money); the unsustainable growth in public-sector overhead (and our nations dependant on this to prop up the economy); and our nations attempted dependence on a “Service-based Economy” (which is by definition doomed to failure).

I’d like to pick up on that last point a little further. Both the public-sector and the “Service industries” cannot generate wealth, they can only exist on the surpluses of other, genuine wealth-creation. Here’s a good example to illustrate it:

Quit your job. And get your next door neighbour to do the same. Then, instead of working at what you both previously did, instead pay each-other to cut each-others lawn. Really, try it, see if it works. You pay him £500 a week to mow your lawn, and in return he can pay you £500 a week to mow his. This is a very pure service-based economy. But no one is producing anything of value, hence there is nothing to fund anything. You can’t build an economy on trying to sell services to each-other, in exactly the same way you can’t get rich (or make any real money) by simply selling houses to each-other. In this simple example, what you need is a third person to produce something of value, to support the service-economy out of it’s surplus. For example, a third neighbour might manufacture food for a living, and (through efficiency and modern processes) produce three times more than he needs for himself. So he keeps the bit he needs (or in the real world the part of his salary that he needs which he has earnt through producing his product of real value) and with what’s left he can use the surplus to pay you (and your neighbour) to mow his lawn. Some of this money you will use to buy food off of him, and whatever is left may be further exchanged for more goods or services.

This is how the service industry and public sector works. It can only exist on the surplus value of genuinely wealth-creating industry such as manufacturing or farming. For the service industry or public sector to grow, you must either have continual improvements in efficiency (i.e. the farmer in our examples uses new technology in order that he can now produce enough food surplus to feed 6 people rather than 3, hence supporting more non-value-generating jobs), or growth in the volume of such industry. However, where we currently are in the UK is that we are trying to grow our public sector and depend on a service-based economy, while constantly shrinking our genuine industry. This is a 100% guaranteed formula for economic collapse.

Play the computer game “Sid Mier’s: Civilization II”. It will sum up how it all works quite nicely.

Phew, bit of a diverse rant there. Exec Summary: We’re doomed; house prices now largely irrelevant; deal with it.

Thanks for this really enjoyed it. One of the reasons I was converted from lurkin to postin was due to the quality of both yours, Bubbs, and a few others quality of posts.

Share this post


Link to post
Share on other sites
Provocative post. Welcome back from hibernation.

When a majority of people think this way, and have acted, Property prices will be much lower. And it will be time to buy. 2-3 years, I reckon

Remember, this will not be a gentle drift down, and at the low it will be HARD to buy

I dont think alot people realise what that means.

Share this post


Link to post
Share on other sites
As a nation we are already effectively bankrupt.

Yes there will be hard times, but I disagree that there is any danger of society collapsing (as a result of the boom 'n' bust anyway). There have been economic slumps, big and small in the past and we're still here in 2005. By predicting more than a recession, aren't you effectively saying "it's different this time"?

frugalista

Remember, this will not be a gentle drift down, and at the low it will be HARD to buy

By which you mean, I presume:

- you may not have a job.

- the job you have may be lower paid.

- income multiples offered by lenders will be low.

- mortgage deals may seem pretty bad.

right?

frugalista

Share this post


Link to post
Share on other sites

Great post, but service industries can indeed generate wealth.

Your example of mowing lawns looks cute, but isn't how the real world works. You could make the same argument regarding manufacturing. I will make you a table for £500 then you make me one for £500. No wealth generation there either.

The UK service industries actually bring a great deal of wealth into the UK from abroad. Without it I dread to think where we would be today.

Share this post


Link to post
Share on other sites

RJG18,

Yes, a great post...the House Price bubble is indeed more of a symptom of much worse underlying problems in our economy. The whole thing has become very, very rotten indeed.

Do you remember a few years ago when the conutryside march went to London? I was in London on the day with some friends, and we were watching it on TV, and a friend of a friend (who was a banker unsurprisingly) shouted at the TV 'go back to the sticks you stupid yokels' - whilst munching on a sandwich. He really could not appreciate the irony of his situation. My Dad and Mum were in that march (400,000 people) - they were sheep farmers (retired now) who worked like Hebrew Slaves for thirty years to produce food for the service economy he worked in (i.e. gambling with numbers on a screen).

I should have punched the sh1t out of him. As it is we just had a big argument and I called him a tw@t. Not enough really.

Share this post


Link to post
Share on other sites

lay off the doom mongering !!

i feel when the crash comes it wont collapse the housing market in total., it should only knock the foam off the recent house inflation. say -40%.

real priced houses at 3.5x salary will still be selling and therefore the economy will still chug along. only the days of money for nothing are over. all those MEWers will simply have to pay it back.

the economy will run like it does right now. quiet high street, but still 100% open. good priced homes will sell.. bad priced ones wont. some of the fat will get cut back, B&Q, YCC ect. i reckon our economy will be as dynamic as it was in say 1993 and will survive. perhaps a lot of the new public sector workers will be out of work and into benefits too and smaller pensions than expected.

i dont really expect a financial meltdown. anarchy or the end of the world as we know it.

at least, i hope not.....

Share this post


Link to post
Share on other sites
Great post, but service industries can indeed generate wealth.

Your example of mowing lawns looks cute, but isn't how the real world works. You could make the same argument regarding manufacturing. I will make you a table for £500 then you make me one for £500. No wealth generation there either.

The UK service industries actually bring a great deal of wealth into the UK from abroad. Without it I dread to think where we would be today.

While I agree with what you say, I still stand by my original point. Although, yes, service industries can generate wealth, they can only do so on the surpluses of actual production.

In your example above, with the tables, there HAS been some wealth generation. Someone has grown a tree out of the ground, to cut down to make wood, to build into a table. Someone (or several people) have used their labour (their time) to make wood, and then a table, that did not exist before. This is genuine creation of tradable value. In services industries this genuinely does not happen. It is the excess value (surplus) that is produced by the bloke who made the table that is used to fund other services in the economy. This is obviously highly simplified, but if the labour of one table-maker produced enough tables to meet the table-demands of 10 poeple, then enough value has been created to fund another 9 people providing non-essential services to each-other, while society is still wealthy enough to provide enough tables. You have to expand this beyond tables to all essential goods, to get a better understanding of how this fits together, but you get the point.

While it is true that to an individual (and to society) the time (labour) of each individual hold value, it does not in itself generate wealth. The labour of some has to be put to productive use, and the efficiency of what is produced creates a surplus of labour (time) in the economy which can be used to carry out other services for eachother. It's all about the ratios of productive time vs surplus time. You cannot sustain an economy or produce genuine wealth solely with service industries.

Share this post


Link to post
Share on other sites
Great post, but service industries can indeed generate wealth.

Your example of mowing lawns looks cute, but isn't how the real world works. You could make the same argument regarding manufacturing. I will make you a table for £500 then you make me one for £500. No wealth generation there either.

The UK service industries actually bring a great deal of wealth into the UK from abroad. Without it I dread to think where we would be today.

But now you both have tables which have worth and you could sell those if you chose to and realise their value. Instead of just having short grass. So manufacturing does generate wealth, and services don't.

All my company does is trade metals. We're effectively a service, we don't generate wealth, we just pass it around from one customer to another (and take some of the slosh). Only those actually digging metal out the ground and processing it (manufacturing) are truly generating anything of worth in the market. And they keep us all going - every trader, every IT guy, every account exec, every secretary, every clerk, every hr boss, everyone. Without someone with a pick and shovel actually making something, we'd all be out of a job.

Edited by stillill

Share this post


Link to post
Share on other sites

Great original post and some decent arguments, nice to see you back Mr. 18.

Its true that its impossible to spend 4 or 5 hours a day on here anymore, the threads move too quickly.

Although I do have nagging doubts about the depth of any recession, I think maybe you are going too far. Yes I think we are in for a sustained period of problems, but I don't quite see it as apocolyptic. One thing I learnt from being away is that the Western economies have very strong foundations, this has kept them ahead for centuries and will likely do so again in the coming cycles. Even though we bemoan our own levels of education and inefficiency, in a global context we actually do extremely well. Its difficult to express, but some of the bureaucracy I encountered abroad was ridiculous. The mind set of some people is very much that if things can be done quicker, then their own jobs are at risk, so they resist change.

Ok that mindset is prevelant around the world, but since we have erradicated much union power our economy is relatively fast moving and efficient at keeping us ahead. We must remember that during the period of our empire, anyone could have suggested that 60 thousand British soldiers could never control the whole of India, yet they did, and Britain became a lot richer because of it. Now we worry about the impact of millions of Chinese graduates and how low wages are and that this means naturally that all future wealth relatively speaking will fall to them, like its their turn.

Actually, just like before, in capitalism the wealth goes to to the wealthy, and the rich get richer. This is because the investment in China will come from the West. We won't give money to them, we will invest and reap multiple return. I may think I am smarter than the Queen, but she is the one with the money, and despite my own claim from her, she will die proportionally richer than I can ever attain.

This comes back to the HPC debate in the UK. What we have a problem with is the people who have borrowed money and chased up prices, not the price of the asset par se. If you borrow, it will damage your wealth. The major banks as lenders will have just creamed profit from this bubble, and lets assume they have done their credit sums correctly (many haven't I assume) then they will just become richer.

The service based economy in the UK includes the City of London, which has been partly responsible for the UK bubble, it also provides expert financial advice for much of the world. The fees charged are huge, and the reason for that is precisely because only few people can understand finance properly. Actually financial acumen is about big picture thinking, not a little understanding here or there. Thats why I think the UK property market is a bubble, and thats why I think we are in for a recession and need to rethink our public spending. But its also why I don't think we are necessarily in for a new world order, cycles suggest otherwise.

Yes the Roman empire eventually fell, but it took a long time and the foundations it laid have helped keep Europe powerful until this day.

Its another simple concept like your gardening one, but its just as valid IMO.

Share this post


Link to post
Share on other sites
Another thread, started by ‘Mopo’, has made me realise my standpoint on the whole house price debate has substantially shifted recently.

I’ve been posting on this site for a couple of years now. I started with a viewpoint of being angry about housing affordability and the fact the majority of the population could grasp the market economics that would make a property crash inevitable, but the more I researched over the past few years and the more I’ve read have lead more to the conclusion that property prices are no-longer an issue. They are not an isolated factor, and the boom, followed by guaranteed bust, is merely one of many barometers indicating something much more serious… at best deep and sustained economic depression and at worst social and economic collapse.

Most people get by in their day-to-day lives by not knowing or understanding this. And those that have it pointed out to them refuse to accept it. Deep, deep denial, which will cause the majority of people who read this to form the opinion that I am some sort of melodramatic, hysterical crackpot/doom-monger for even suggesting it. But the economics of the western world have got to a point where it really doesn’t matter what property prices do. We all lose either way.

This is actually one of the reason why I don’t post much on here anymore. (I remember ye olde days in which I could spend 4 or 5 hours a day posting on here). It was fun, with the sort of comments like: “Hey, lovely house up the road from me is on at £300,000. After the crash I reckon I’ll pick it up for a bargain of £150,000”. But you come to realise that such posts completely miss the point. The very factors which caused the boom and bust in prices will ensure that the price you can get the property for will be almost irrelevant against such an extremely bleak economic backdrop.

As a nation we are already effectively bankrupt. FIAT currency, fractal reserve banking, balance sheet accounting, and mismanaged money supply, along with falsified inflation and interest figures, have pretty much corrupted any true underlying concept of money as an accurate or correct representation of wealth or value. The lack of genuine value-generating industry and innovation means our supply of wealth is not sustainable. This comes both in the form of speculation on non-value generating assets (e.g. property) in favour of investment in real value-generating industry; the massive growth of debt (and non-value-backed money); the unsustainable growth in public-sector overhead (and our nations dependant on this to prop up the economy); and our nations attempted dependence on a “Service-based Economy” (which is by definition doomed to failure).

I’d like to pick up on that last point a little further. Both the public-sector and the “Service industries” cannot generate wealth, they can only exist on the surpluses of other, genuine wealth-creation. Here’s a good example to illustrate it:

Quit your job. And get your next door neighbour to do the same. Then, instead of working at what you both previously did, instead pay each-other to cut each-others lawn. Really, try it, see if it works. You pay him £500 a week to mow your lawn, and in return he can pay you £500 a week to mow his. This is a very pure service-based economy. But no one is producing anything of value, hence there is nothing to fund anything. You can’t build an economy on trying to sell services to each-other, in exactly the same way you can’t get rich (or make any real money) by simply selling houses to each-other. In this simple example, what you need is a third person to produce something of value, to support the service-economy out of it’s surplus. For example, a third neighbour might manufacture food for a living, and (through efficiency and modern processes) produce three times more than he needs for himself. So he keeps the bit he needs (or in the real world the part of his salary that he needs which he has earnt through producing his product of real value) and with what’s left he can use the surplus to pay you (and your neighbour) to mow his lawn. Some of this money you will use to buy food off of him, and whatever is left may be further exchanged for more goods or services.

This is how the service industry and public sector works. It can only exist on the surplus value of genuinely wealth-creating industry such as manufacturing or farming. For the service industry or public sector to grow, you must either have continual improvements in efficiency (i.e. the farmer in our examples uses new technology in order that he can now produce enough food surplus to feed 6 people rather than 3, hence supporting more non-value-generating jobs), or growth in the volume of such industry. However, where we currently are in the UK is that we are trying to grow our public sector and depend on a service-based economy, while constantly shrinking our genuine industry. This is a 100% guaranteed formula for economic collapse.

Play the computer game “Sid Mier’s: Civilization II”. It will sum up how it all works quite nicely.

Phew, bit of a diverse rant there. Exec Summary: We’re doomed; house prices now largely irrelevant; deal with it.

Interesting opinion, a bit too simplistic and panicky though.

Not everything is as gloomy as you may imagine as far as British

economy reliance on services are concerned and I try to make

my case below.

I feel really sorry for those Italian shoe manufacturers who are

still trying to do their business exactly the way their grandfathers-founders

did when Italian labour was the cheapest in Europe. No wonder they

are suffering losses now and choke on Chinese competitors.

Economy evolves and changes and you have to adapt and use

your brain and not sit on your back side and blame euro as they do.

Any product in general is a mixture of manufacturing and service activities

(1st year economics course). Any final product for sale in the economy

is likely to be a product of a chain of activities (e.g. mining-manufacturing-selling).

Of course, there are examples of pure manufacturing or pure services

but in most cases the closer you get to the final stage in this chain,

the more added value in the product actually comes from the services.

The final leg is service in its pure form – selling the stuff.

Globalization means that as national economies become more interdependent,

ndividual countries naturally tend to focus on their comparative advantages.

One of the UK’s natural advantages is language-based skills

(which happen to be mostly about services but not not necessarily so)

as English language is luckily globally recognized, and not labour-intensive

manufacturing. And this is NOT a reason to panic as soon as you don’t

want to isolate yourself from the rest of the world; on the contrary,

this is quite a natural process of world labour division in the global economy.

As for the effect of globalization on the outsourcing of labour-intensive

industries to the third world that many seem not to be happy about,

give the third world a break – they are utilizing their ONLY competitive

advantage of cheep labour for everybody’s good. World trade, division

of labour and focusing on your natural strengths do benefit humanity,

there is no doubt about that.

In fact this may be one of the main reasons why early humans

could overtake Neanderthals in Europe.

Share this post


Link to post
Share on other sites
Interesting opinion, a bit too simplistic and panicky though.

Not everything is as gloomy as you may imagine as far as British

economy reliance on services are concerned and I try to make

my case below.

I feel really sorry for those Italian shoe manufacturers who are

still trying to do their business exactly the way their grandfathers-founders

did when Italian labour was the cheapest in Europe. No wonder they

are suffering losses now and choke on Chinese competitors.

Economy evolves and changes and you have to adapt and use

your brain and not sit on your back side and blame euro as they do.

Any product in general is a mixture of manufacturing and service activities

(1st year economics course). Any final product for sale in the economy

is likely to be a product of a chain of activities (e.g. mining-manufacturing-selling).

Of course, there are examples of pure manufacturing or pure services

but in most cases the closer you get to the final stage in this chain,

the more added value in the product actually comes from the services.

The final leg is service in its pure form – selling the stuff.

Globalization means that as national economies become more interdependent,

ndividual countries naturally tend to focus on their comparative advantages.

One of the UK’s natural advantages is language-based skills

(which happen to be mostly about services but not not necessarily so)

as English language is luckily globally recognized, and not labour-intensive

manufacturing. And this is NOT a reason to panic as soon as you don’t

want to isolate yourself from the rest of the world; on the contrary,

this is quite a natural process of world labour division in the global economy.

As for the effect of globalization on the outsourcing of labour-intensive

industries to the third world that many seem not to be happy about,

give the third world a break – they are utilizing their ONLY competitive

advantage of cheep labour for everybody’s good. World trade, division

of labour and focusing on your natural strengths do benefit humanity,

there is no doubt about that.

In fact this may be one of the main reasons why early humans

could overtake Neanderthals in Europe.

I think you said the same as me, but in a little more organised fashion!

Share this post


Link to post
Share on other sites
While I agree with what you say, I still stand by my original point. Although, yes, service industries can generate wealth, they can only do so on the surpluses of actual production.

If the surplus of production comes from another economy then surely it does generate wealth for this economy?

A lot of services based business/professions will struggle in a recession, but some are a vital part of a modern economy and without them there would be no production. E.g. try running a large manufacturing business with an IT department.

What service based industries could be lost without a significant knock-on effect to manufacturing/production? (there are probably a few, but I can't think of any right now)

Share this post


Link to post
Share on other sites

Very good points re creating wealth above and I take what you both say on board. However, we can add value to many things in the service sector to create wealth too.

As we move away from an industrial society, I think to dismiss services as non-wealth creating will prove increasingly incorrect.

Take a website designer for example. Service industry and wealth creating.

Share this post


Link to post
Share on other sites

Service (bad) vs Manufacturing (good) is an abstraction. Value Added, which is what people are prepared to pay for, means taking an input, and doing something to it, yielding an output. Value Added is the difference in value between output and intput (hopefully its positive). The input may be an unmown lawn or a tree, and the output a mowed lawn or a table, but the process is the same. Ultimately you are paying for the added value which is human skill and labour. In more complex examples it still always boils down in the end to this. Everything is a service in the end.

In any case I've worked in manufacturing all my life, but I've never actually personally made anything. So am a manufacturer (hero) or a service parasite?

Edited by BoredTrainBuilder

Share this post


Link to post
Share on other sites
Service (bad) vs Manufacturing (good) is an abstraction. Value Added, which is what people are prepared to pay for, means taking an input, and doing something to it, yielding an output. Value Added is the difference in value between output and intput (hopefully its positive). The input may be an unmown lawn or a tree, and the output a mowed lawn or a table, but the process is the same. Ultimately you are paying for the added value which is human skill and labour. In more complex examples it still always boils down in the end to this. Everything is a service in the end.

In any case I've worked in manufacturing all my life, but I've never actually personally made anything. So am a manufacturer (hero) or a service parasite?

Very good point.

I too worked for a manufacturer (of high end servers) but I worked in a service arm of the business (support). Without the support personnel the company would not have been able to sell any servers.

There are loads of examples like this.

Let's take a car as an example. Somebody makes the car, (manufacturer) somebody else probably sells the car, (service?) somebody else supplies the loan (service), somebody else insures the car (service) somebody else services the car (service) etc.

Without all these service industries nobody could sell a car. Without the manufacturer the services would have no business.

Manufacturing and services are inextricably linked in modern economies. You can't do one without the other.

I've been thinking about service industries that we could lose with little or no impact on manufacturing. So far I've got injury lawyers and estate agents. Are there more?

Share this post


Link to post
Share on other sites
Without all these service industries nobody could sell a car.

That's odd, because cars were sold for years without them. You don't need a salesman if you buy direct, you don't need a loan if you save to buy, you don't need insurance except for peace of mind, and you don't need a mechanic if you maintain it yourself.

They're all useful services, but none are essential to driving.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.