Added value , consumption and economy balance .

Creating jobs is not enough . Every economy needs to generate employment with sufficient added value to secure equilibrium between earning and spending at the maximum possible life standard .

Let us assume that a country’s GDP is based on a consumption of 75 % of the GDP’s total .

The remaining 25 % of the GDP should necessarily provide the added value required to maintain the 75 % consumption without continuous need of credit and financing , because otherwise the economy will reach a debt private level impossible to handle that will sooner or later cause a similar debt at estate and corporate levels .

To understand this it is necessary to clarify what real added value is .

Added value is the company or project rentability that demands highly skilled workers with relatively high average salary , good company earnings and the possibility of safely export anywhere without detriment of earnings .

That , secures long term investments and a strong demand of a wide and healthy middle class .

To think that the creation of jobs in areas such as distribution , financing or state and city services are the solution to a country’s economy is therefore an exercise of naiveness .Without sufficient companies working in areas of hightech products and services or real big mass production units highly competitive to export 50 % of their output ,it is simply impossible to pretend that the economy can sustain 75 % of the GDP through consumption .

By the way , housing is anything but added value . Housing is a cemetery of liquidity or inflation instrument , depending on whether the cycle is depressive or expansive and spend the economy resources in that sector beyond a 4 % of the GDP is simply very irresponsable .The speculation allowed by extraordinary relaxed credit policies in housing without preventive fiscal measures that will rein in speculation , are bound to cause economy imbalances or bubbles that will turn into long lasting depressions an deflation .

In fact for many reasons other than that , renting should be the best solution to promote in a very lasting future .

All that implies a GINI indicator around 0.25  , so that consumption does not rely on a mounting private debt .

Big car companies and other mass production industries will be seriously damaged as the average salary is low and economy consequently has to depend gradually more on credit .

Are political leaders beginning to act in that direction ?. For all I can see only in US , China , Australia , Canada and Northern Europe governments seem to have learned the lesson . I believe Germany also has to clearly improve because no matter what many foreigners think this country does not have a middle class sufficiently ample and healthy


Published in: on enero 26, 2013 at 12:43 pm  Comments (40)