As we enter the year 2012, most developed countries are seeing a positive sign. Their unemployment rates are dropping. To be sure, they are not dropping fast enough and it will still be a very long time before real improvements are made. However, provided you are not living in a country going through IMF restructuring (Greece, Spain, Portugal and Ireland), the future looks better than the past.

With one notable and, to many, surprising exception: The United Kingdom. British unemployment continued to rise throughout 2011 and it now tops 8.3%. 1 I wondered why is this happening? Of course most news articles and economic analysis blame the Eurozone crisis. Europe is Britain’s largest trading partner and if the EU gets sick, Britain gets sick too. It’s a convenient argument; timely, topical and it sounds good over a few beers.

Unfortunately, it’s dead wrong.

The EU crisis is not the cause of Britain’s unemployment.
There are two easy to spot reasons why this argument is wrong:
1) Britain is a net Importer from the EU, that means that Britain imports more from EU countries than it sells to EU countries. 2 Since the UK buys more than it sells to the EU, the EU crisis should not overwhelm the UK economy. That does not mean there is no effect. There are some effects and they are being seen; according to the latest data, recent British exports to the EU have dropped about 3% 3. However, a 3% drop in the 3^rd Quarter’s exports does not make national unemployment rise for the entire year. Exports do not affect an economy retroactively.

2) Britain in comparison to Germany. Unlike the UK, Germany is a net Exporter to the EU. Germany is not a service economy like Britain, it is an export driven economy and while the Germans sell plenty everywhere, the EU forms the core of Germany’s export machine. Thus, Germany has also been experiencing the effects of reduced exports to the EU. In fact, Germany’s exports to the EU have dropped close to 4%, even more than Britain’s 4.
This makes sense; an ailing EU should have a much more pronounced effect on German exports than British. However, despite this drop in exports, Germany’s unemployment rate has been going down all year, even after the darkest days of the EU crisis. 5

So Germany’s exports go down more but unemployment also goes down? Britain’s exports drop less but unemployment goes up?  This does not add up.
Clearly, the EU crisis is not the reason. It’s not helping of course but facts are facts and these facts are clear and indisputable.

I suspect there something else at work, something in the UK economy itself.

I have been to the UK twice in the last 3 years. I think it’s a charming place and the people are lovely. I really mean that, I like the UK, a lot.  After my second visit though, I started incorporating into some of my lessons a simple little diagram when explaining something that I noticed while in London.  It seemed to me that London had two labor levels, a top level and a bottom level. Those at the top, with higher standards of living worked for, or peripheral to, either government or finance. The rest, the bottom level worked in much lower paying jobs centered on sales (retail or business), service or repair.  To sum this up in a simple way I started drawing a chart that looked similar to this:

Government Employment                                              Financial Services
Government sponsored contracts

Retail + Sales                                                               Services or Repair

The blank box symbolized the middle, the part of the economy that I simply never saw. The part of the economy that actually produced something or was in some way related to the production of something, even if it was an ink pen. Producing a pen requires multiple market segments: chemicals, plastics, metal stamping, paper manufacture, graphic design, printing, packaging, etc. In other words, a company that produces a pen supports other companies that produce other things, such as the package the pen comes in, or the chemical company that makes the ingredients for the ink.

Interestingly, everything I saw in the UK was made somewhere else, the tea boilers, the washing machines, the phones, even the pens and pencils.
(Food is the exception of course, the UK, much like the US, makes a lot of packaged food.)

Over time I discovered that everyone I met in the UK fell into one of the ‘big four’ labor categories I described above. The well offer worked in or with government or in or with big banks. Now, I am not saying no one in the UK makes or supports anything, I am saying I never met anyone who did and I remembered that because it really bothered me.

The above graphic became the key to understanding why the UK unemployment is rising and why I believe it will continue to rise for years. I fear that, for the UK, the struggle with unemployment is only beginning.

Because of its high rate of Debt, the UK is undertaking strong government cost-cutting measures. Pensions are being slashed, the retirement age lifted and spending reduced. The UK government is also reducing its large payroll. According to recent estimates the UK will reduce its public sector by some 700,000 people in the coming years 6. That is a lot of people and a lot of people in the upper part of my diagram who currently are, or will soon be, looking for work. So this begs a question: Where does a formerly well paid government worker (or contact worker for a now cancelled project) go to find a decent job?
Some will of course suggest the other side of the upper part of my diagram, the one occupied by Financial Services. Government workers frequently get jobs at banks right? Well, that used to be true, but it certainly isn’t anymore. Why? The big British Banks (along with many other countries’ largest banks) are laying people off too, lots of people 7.

This begs a question: Where does a formerly well paid bank or investment adviser go to find an equivalent job?

Let’s look at my diagram again.

Government Employment                                              Financial Services
Government sponsored contracts

Retail + Sales                                                               Services or Repair

We can now see that BOTH sides of the top level of Britain’s economy are being squeezed, at the same time. Where are these people going to go to find equivalent work? Some of the most productive, educated and well compensated people are being taken out of the UK economy in the middle a long period of slow growth/recession. This is a terrible kick to any real hope of a rapid recovery.

Unfortunately, it only gets worse because after the squeeze at the top, comes the crunch at the bottom.

Consider: After a few months of unsuccessful job hunting and seeing their severance packages getting smaller, how much less will these formerly well paid people spend? If hundreds of thousands of government workers, former contractors, bankers and advisers reduce their spending to conserve cash, what will happen to the bottom level of the UK economy? Upper middle class and middle class wage earners spend a lot on retail, repair, and services. When many of them feel the pinch of income reduced to a still working spouse plus government assistance they will slash spending. This will then put a strain on the lower parts of the UK economy. In fact, it has already started with a gloomy November retail sales figure and expectations of a weak Christmas 8. Some industry analysts are using words like ‘miserable’ and, instead of blaming Europe are correctly highlighting that consumer spending  is the big worry moving forward 9.

Their concerns are well founded. With increasing pressure on the top level earners through layoffs, spending will drop. This will naturally put pressure on stores and service centers to first cut their prices, and then later, cut their own staff. Once the bottom level of the UK economy starts cutting jobs then the damage will cut much closer to the bone. UK Unemployment, spiked with government cuts and bank downsizing will be jolted again when the sales and service sectors contract due to reduced middle class spending.

As of this writing official UK unemployment is 8.3% 10. I take no joy in saying here that I expect that figure to reach double digits within the next 2 years.

She walked away from the convulsing man, trying not to see. For sight often carries that corollary, action. By ‘unseeing’ or pretending not to see this woman could discard the obligation, leaving the man to die. I am made of some other more humane material, I LOOKED, I saw the man was severely underdressed, jeans and a thin sweater. It was minus 15 degrees out! He had no jacket, or gloves, his hands were white. He was convulsing, face down on the pavement, spasming, jerking around. It was disturbing, no doubt about it, you can see why the lady looked away. But of course she walked away. This man would die if left unattended, I was convinced of this.

I went into the store and approached a security guard, someone who I knew was being paid not to look away. I took her outside to see what I had seen and she sprang to action. An ambulance was called, medical attention was provided.

I curse that woman who was such a coward as to walk away from a dying man on a sidewalk. Who was too weak to carry the small burden of sight.

A continuing and disturbing trend in the United States is disregard for expert opinion. Or at least equating what an expert says with what a reporter says or your neighbor. The idea that all opinion is the same, typically when an expert talks about their field of expertise it is not really their opinion, its the most likely outcome. Certainly the bona fides of some “experts” should be called into question. An expert in dinosaur bones should not be on TV talking about plastic recycling. A healthy skepticism that leads the curious to dig a little deeper is a good thing.

Now, however we are not seeing skepticism, we see a cynical arrogance. If an expert does not agree with someone’s opinion, they must be full of it. I mean we are an informed public right? This belief, that common sense or faith or intuition can somehow guide a person through difficult or complex issues just as well as high levels of education and years of professional experience. Its not true, sorry but its not. Ever try to do regression analysis for a 200 apples sprayed with pesticide or derive how much pollution tax should be put on 5 power plants in different cities? You can’t guess that stuff, or look it up on a blog.

A person who takes an Economics course, or Statistics, Engineering, Medicine, Physics, Chemistry and on and on will tell you flat out, you cannot use ‘common sense’ to understand anything beyond the most rudimentary, and in fact, “common” things. If you did not study, you would fail these subjects, miserably. Why? Well this is not the Middle Ages, most fields are very well developed and require critical skills, analysis and formula or logic that everyday in the 9 to 5 does not. A whole lot of really smart people have combined to make this modern world what it is today. This is why a person must LEARN a field, they cannot guess it.

Yet when it comes to administering a town or city our country, a portfolio with billions in assets or a company with offices in 5 countries, we think people with everyday experience can do just fine. Its absurd. Look around, why are bridges collapsing, homes being washed away and the economy staggering spectacularly? Because the idea that you really don’t need experts has taken hold. The cities structural engineers are telling the city council that they need more money, the bridges are falling into disrepair. The council ignores them, with the public’s blessing; they just have their hand out, sucking off the tit of public funding. Two years later a major bridge collapses killing dozens. Hmm, maybe those structural engineers actually knew what they were talking about!

While a welder or stock broker is a valuable asset in any society they do not replace the architect, engineer or economist. Investors and brokers ignored Warren Buffet who for years had called derivatives trading a ‘time bomb’, now only 2 Wall Street firms with large derivative portfolios exist. School boards ignore overwhelming evidence of natural selection and try to force “intelligent design” into the curriculum as some kind of reasonable alternative. A conservative court justice rules against this policy calling it a gross violation of authority and contrary to the very concept of education. Arrogance and lack of knowledge power both of these examples.

Welders do not draft the blueprints any more than the building architect welds the girders. If the architect was welding the girders, that’s one building I would never go in. I want competent and certified people doing the work and educated people doing the design. Think of it, if a chemist was suddenly called upon to run a lathe for the aluminum fabrication facility they would be awful, wrecking valuable material and wasting money and time in the process. Of course, unless the chemist was an egotist, they would tell you that, freely volunteering the limits of their capability and knowledge. Maybe the fact that the chemist would freely admit this should tell you something. The myth of the superhero is just that, a myth, perhaps its time to listen to those who really do know what they are talking about.

Basically, there just is nothing here in the southern end of Manitoba. Now I hear that the northern end is more interesting but the Northern end is so far away that it takes like 24 hours just to get there and that’s assuming perfect weather and horrible roads. You could fly…

But this is about road attractions. See in Manitoba all the towns are tiny and this being flat ground, there just is not much in the way of geologic formations. The country is not that old and since it is so vast, historical preservation is a relatively new concept so attractions tend to be settler related and most of the settler establishments that sound interesting in a history book are long gone in real life. The stuff that is around is like the west wall of a fort, not a whole fort mind you, a place to explore and photograph, no just like 1 wall; fascinating…

Now, apparently, there are some fossils around Winkler/Morden, I say apparently because I have never seen them. Oh I wanted to but the presentation was so awful that I just went home.

Let me set the scene; Nina and I were coming back from the states a little trip into the western part of North Dakota. So we had already been in the car for over 4 hours and the thinking was, lets just get back to Winnipeg. But hey, there’s a sign for a Manitoba attraction and this one is for fossils. Its said “Fossils 2 KM” with an arrow to the left; hey, how bad can that be, fossils 2 klicks ahead? It was mid-afternoon a short stop to check out some fossils might be fun after half a day in the car. Problem was there was a lot of road construction and not too many road signs ahead. Well, two clicks ain’t far so I cruise on down the road but there are no signs, no turns, no indications, no nothing. A few clicks ahead later I see a road on my left but no signs of any kind. No road signs, arrows, nothing and the road is kinda hard to see with all the orange mesh and barrels everywhere “Maybe that’s the road” or maybe not so I keep going. A few more klicks and still nothing. Clearly that was the turn and now I need to bust a U. I pull over and after waiting a while for the traffic to thin on this main road reduced to two tiny lanes due to construction and I can turn around. I approach the unmarked road now from the other side but still no signs for what this road is or where it goes. I take the road anyway, I mean this must be it and I am quickly rewarded with the tell-tale silhouette of the Manitoba attractions sign. As I get closer I see “Fossils 57 KM”

57?! The last sign said 2! So the 57 might simply mean 57 km to the next turn? Hell with this.

So even if they seem interesting, you gotta find them first…

Its spring cleaning time! You may notice a few things have changed, such as this Blog! More comin’, so keep an eye out. Oh, and while you’re here, check out the new pics and vote for your favorite!