The fascinating thing, for those of us who are followers of economic trends, is that nobody knows what is going to happen to our economy. Or the economy anywhere, for that matter. There are some who know a lot, but most are just tongue flappers. One thing is that our media, in its weakened state, must follow up on stories to identify which individuals are genuinely considering systemic changes that ensures that the planet, and our society, can flourish.
Too often media fall all over themselves reporting on politicians, who often ask for what they get. However, too seldom do reporters pay attention to those who are saying something of value in public about our society’s financial system. Reporting on the political extremes is like shooting ducks on the pond. Predictable and no challenge.
In much of the media there is too little attention paid to financial analysis. With the obsession of editors on politics, and politicians, it might be time for individuals who know lots about public finance to come to the front of the queue. Not column writing radio talk-back types who specialise in whipping people up, even when they know little about the topic they are writing about. I want to read the opinions of people who really know what the numbers mean, and what lies in behind them.
I have had reporters ask me to explain financial reports. They have then admitted that they have no idea about what they are reporting on. This is a great danger as they will be in danger of being influenced by shallow opinion writers with barrows to push. Often bad writers who are slanted toward a biased, or extreme, view rather than an informed and balanced one.
The Press often focuses on “The Strip”. I have no idea whether or not I am correct, but the length of time it took to build this development suggests to me that there were considerable financial challenges getting the bankers on side to finance the final deal. That is common in our society with the way banks operate these days. The cost of the fitouts on this strip have to have been astronomical. A justifiable question, is whether this business model will survive in the environment which we are moving into. I really do feel sorry for the businesses which are heavily in debt. However, the journalists should not focus on the impact of rates on businesses which has been all the coverage to date. That enables the businesses to be painted as “white” and the Council to be painted as “black”. What the reporters could also take time to look at would be the business model which underlies the company which is trading. The focus on rates is easy, and lazy, reporting, and is really shooting at the duck sitting on the pond. There is little, if any, attention focused on the state of the pond.
We have been lucky that three Ministers of Finance, Cullen, English and Robertson, have been extremely prudent. This has allowed us to have the resources as a country to face this pandemic. However, we must make sure that the support structures which have been put in place make sense.
One of the big problems over the past 30 years has been the breaking of the link between corporate salaries, which have skyrocketed, and the wages being paid to staff. Another has been the massive growth in debt. For individuals and companies. Neither of these trends have been healthy.
Serious financial reporters are turning their minds to the challenges to our long-term economic well-being. In the Financial Times this week there were two interesting comments. The first was regarding the way the financial system undertook a contortionist act to appear to be one thing when it was something else post the 2008 financial meltdown. They said that they did not think it would now work “containing corporate debt by regulating lenders”
They went on to say:
After the financial crisis, bank capital requirements were made stiffer. The leverage merely slithered off of bank balance sheets and re-emerged in the shadow banking system.
They then made a suggestion, which I had not thought of, which would put a brake on the exponential growth of debt:
A more promising step would be to end the tax deductibility of interest. Privileging one set of capital providers (lenders) over another (shareholders) never made sense and it encourages debt.
They then turned to the area of executive pay:
Next, executive bonuses should be tied to pre-leverage return measures, such as return on assets or on total capital, rather than after-leverage measures such as return on equity or earnings per share. Debt can increase EPS, but not the value of a business. Bosses should not be paid more for borrowing more.”
The Economist considered the challenges of balancing the large versus the small businesses:
The most overlooked risk is of a political backlash. The slump will hurt smaller firms and leave the bigger corporate survivors in a stronger position, increasing the concentration of some industries that was already a problem before the pandemic. A crisis demands sacrifice and will leave behind a big bill.
These quotes ask questions about how society constrains the massive debt which has propped up our society’s excesses; and the unhealthy growth of executive salaries and bonuses.
This week we have the CEO of the economic development agency, ChristchurchNZ, coming to address the Tuesday Club.
I make no apology for the focus on finance and the emerging of the businesses which create employment at the moment at the Tuesday Club. It is an essential area on which we must focus urgently.
- What have we learned from this pandemic, which has given us much time to think and read?
- Which businesses will we support?
- How do we write the sustenance of the planet into every decision me make?
- What role will we play in the world?
- Where are the future jobs?
- How can we think and plan as a region; as an Island?
- What support structures do we need to put into place?
- How can we clarify the areas where we excel, and create supply-chains so that we can create products for local and international markets?