Monthly Archives: October 2008

Lost value: the crash

Now that the so-called ‘credit crunch’ is becoming recession (because people are waking up to the fact that value isn’t there if no-one can repay their debts) we’ve heard some enormous estimates of how much money we’ve lost. Trillions lost from the stock market and the UK’s houses: we’re supposedly all poorer because of this. I’m going to show why this isn’t the case.

One question that can be asked, if all this money is lost, is ‘where has it gone?’ A good answer was provided here, in comments in response to a Guardian piece.

thrawnpop said:

If you buy a used bicycle from me for £100 and then, in order to get some spare cash, are forced to sell it the nexy day for £10 then 90% has been wiped off the value.
The money tou lost didn’t evaporate out of the bicycle – you lost it when you paid me that initial over-priced sum. I still have you £90 if I’m smart…

Who was selling shares at their peak??? That’s where the “lost” money is.

Now this is, to some extent, true. However, in a ‘market’ like a stock exchange or the theoretical ‘housing market’, the price used in one or more buy-sell transactions is taken to be indicative of a ‘market price’. Analysts then multiply this figure by the number of objects in the market (shares, houses etc.) to give a total value of the stock. Hence, if the price of a share falls from 50p to 25p, and there are a billion shares, then £250,000,000 has been lost in value.

If we take the example of the second-hand bike we can envisage a situation where, upon hearing that thrawnpop sold his bike for £100, we all ‘write up’ our assets as though the bike was worth £100. So the value of the nation’s broken bikes in garages is £100 million. And then when we realise that £100 was an overvaluation, or a mini-bubble, we ‘discover’ that each of our bikes is only worth a tenner, and the nation’s broken bikes are worth £10million. So we’ve ‘lost’ £90million in a ‘write-down’. But the £90million never existed, it was a paper asset. The only money that was lost, the only money that went anywhere was £90.

This is why all the talk of Britain’s companies being worth X, or Britain’s real estate being worth Y is just hype. Imagine how much Britain’s houses would be worth if every homeowner decided to sell up and move to Australia…


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Context is everything: edensor technology college and politics

This is a really sorry affair, especially because some people have been really quite wrong-headed about how they go about things, and others just don’t know what they are talking about. This is a local story: the teachers of Edensor technology college in Stoke were due to go to Marbella for a training (long) weekend, but it was cancelled after the local paper got hold of it, and the story went national. Here are reports from the BBC, the Times, the Guardian, and the Sun. The issues I’ll address here are the costs/benefits, and the political nature of the turnaround.

First, the costs and benefits. At first glance a four-day trip to Marbella looks outrageous: why not do it in the school or in a nearer hotel. One argument is, because Spain is cheap, it’s more cost effective to do this in Spain than Manchester. But why go away at all? The main argument here is that being ‘away’ means people can concentrate on the training, and not be shooting off home as the sessions finish. I’d argue that, if those in charge believe that being ‘away’ is worth the £18k (perhaps doing it at the school would mean the training would need to be run twice or more), then they should do it. And if Spain is cost effective, then do that too.

However, it’s the context that matters. In Stoke, unlike elsewhere, teachers earn more than the average because wages there are very low, so they are seen as already rich. As well as this, they are seen as having long holidays etc. etc. This is because many people in Stoke are in industrial or neo-industrial (think call centres) work where it’s only the law that ensures people get the minimum wage and their holidays. I’m sure some will be employed with less than the minimum. Now there’s a recession on, and people fear they won’t be taking holidays it looks like they are having treats at taxpayers expense.

In the wider context, however, this is as nothing. Senior educationalists go on similar trips – I heard about a recent visit to Canada – as do councillors and council officers, medical professionals and so on. In this case, the cost seemed low. When you consider that the education sector – and that’s taxpayers money – spends millions of pounds on consultancy, this is a non-story. The sector hires consultants (often senior ex-teachers and so on) at rates of £1000 per day (and more) to do the work that would in the past have been done by employees. And, if this was all in a middle-class area of London, where everyone gets sent abroad for work, and many people have done consultancy work, no-one would bat an eyelid.

Second, there’s the political angle. Interestingly, the story came in the week that the Conservatives (at their conference) pledged to give schools “the freedom to innovate and with control over budgets, curriculum and discipline” (see here). Now this means allowing them to spend their money on trips away if they see fit. The intervention of Stoke’s Mayor, saying the headteacher made a mistake, shouldn’t have mattered. The headteacher was entitled to make his decision with the backing of the governing body. If the parents don’t like it, then they can change the governing body. That’s the point of local control.

But there’s more to it than that. In Stoke, we’ve got issues with regard to the Mayor and schools. The Mayor is seen as part of the plan to close loads of schools (costing lots of money and annoying many parents). There’s also a referendum in two weeks to decide if the mayoral position will still exist past 2009. The Mayor and the councillors need to be seen to be on the side of taxpayers and parents, and because the sentiment of the local people/media was against the trip, the trip was cancelled (losing all the money too).

So the question is, why did the headteacher back down so easily? It’s an odd one. The Mayor, Mark Meredith said “they have now got the worst of both worlds because they will have to pay for the cost of the trip but will have to hold the conference at the school.” This to me sounds like a case of two wrongs trying to make a right. Everyone knows that this leaves them in a bigger mess than if the trip had gone ahead, and then bollocked the head when they got back. Would they have sacked him?

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The neighbourhood polity

I don’t often write about my PhD work here, but this is about blogs and googling your own work. The other week I did a conference presentation about the neighbourhood political scene. I described this forum as the ‘neighbourhood polity’.

One of my colleagues blogged about it here, and then someone reading his work also responded here. And because this term hasn’t been used in this context before, googling ‘neighbourhood polity’ just finds things that refer to me, but not my work itself. Interesting.

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