Jeremy,

Thanks for the F R Banking info, fascinating stuff. If the gold all disappears and we are all living with IOUs isn't there a catch somewhere? I pay for my goods with an IOU, I get paid in IOUs, I invest my IOUs and get a return in IOUs. I can't change into gold but I can change them into food, a car or a house.

Back in my wild west town, a reputable person issues IOUs, which everyone uses to get what they want. He issues the IOUs to anyone who wants them but he wants 120% back at the end of the year. Everyone is working hard making goods and services and Mr. IOU is getting richer by 20% a year for doing nothing. Now... Mr. IOU who claimed to have property, gold, backers in far away places was safe because the farmers did make big profits and gave him his 20% in his own IOUs.
Here's the crunch, in fact he didn't have anything but IOUs, no gold, no backers, it was all paper, worthless paper, he was a bluffer, a smooth talker, he didn't have any backing and no one knew until the crunch came. All built on confidence & trust, when that goes what a crunch.

I'm going to my thinking room with pencil and paper to go through this.....

Whatisname

Yes Made in Britain, it's Evan Davis, a three part programme about where we are going as a nation, Monday at 9pm BBC2. There's a 4 minute clip on the BBC website. Main point is that it's a race to stay ahead, other countries are catching us and we have to focus on what we do best, and that famous last line....we have to stay ahead in science, technology & engineering, which of course comes back to education and encouragement for youngsters in all these fields. Many may watch, mainly the already converted, and few will understand.

Huudi

Tell you a story. I was Senior Design Engineer Electrical & Instrumentation in Kuwait Oil, and I kept lumps of steel, copper, brass, aluminium, & so on, on my desk. I used to ask local "engineers" which was which, all failed. In Indonesia we had basic training in how to use a hammer or screwdriver. So we may be a bit lazy and misled but we have a genetic love of invention and innovation. The main fault I found is motivation, give those apprentices an old motor bike and a few parts to get it going for themselves and they'll work all weekend. Stick them in a classroom with a boring inexperienced teacher or in a workshop filing a block of iron, then they'll fall asleep. At Uni as a mature student some of the lecturers, Phd in their own research had little knowledge of the real world, and this led to some heated discussions. I often stopped the lecture when I lost track of the non-stop writing and note copying which some of them dish out, it's not very motivating for a young person, I had the advantage that it fitted in, filling gaps with the experience and knowledge I already had.

Anonymous 1 needed this 'Off the Record'

engineertony
At #46, I intended to show how parts of the system work.

Prof Eman

Alasdair

Only an idiot would regard the whole of economics as a science in the same sense as physics. Some areas come closer to being predictive, verifiable and repeatable than others. It is more a way of thinking. The Economist's Dictionary of Economics defines economics as "The study of the production, distribution and consumption of wealth in human society." It is about the decision making processes behind the allocation of scarce resources such as land, labour and capital. Land can be described as natural resources (including air and water), labour includes intellectual as well as physical work, capital includes intellectual as well as physical property. Money is just a claim on resources.

Accounting is a set of conventions. If everyone uses the same conventions they can understand each other and know the limitations of the data. Where certainty does not or cannot exist, informed estimates are usually better than tossing a coin. See under: http://en.wikipedia.org/wiki/Bayesian


Taking your example of depreciation: a machine tool might be depreciated using the reducing balance method. A reasonable estimate, usually based on experience, is made of the machine's useful life. Suppose the machine is expected to last ten years, you could deduct 10 per cent of the purchase price from your tax bill every year for ten years. But in real life machinery loses more value in the first years of its life than in later years so depreciation is front loaded. So if the machine loses 25 per cent of its value immediately it is purchased, then 25 per cent of the (75% of the purchase price) depreciated value the year after and so on. Eventually it wears out or becomes obsolete and is replaced. If the old machine is sold for more than its depreciated value a taxable profit is made. If it is sold for less, then a tax reducing loss is made.

Other items that effectively last forever might be depreciated on a straight line basis, by a fixed proportion of the purchase price each year. For example, a professional musician's flute might be depreciated over ten years. Similar adjustments are made when it is sold.

Now not even engineers and scientists can predict new technological breakthroughs that might make a machine obsolete before it wears out. You have only to think of computers. So accountancy is an art as much as a science. As is economics. Indeed at Oxbridge you would study political economics which reflects the fact that human choices are involved in the allocation of those scarce resources.

Please feel free to disagree - I am neither an accountant nor an economist and have limited qualifications in either area. But that doesn't stop me trying to understand. Indeed some people find me very trying!

engineertony

I like the way your mind works.

We do what we can and admit our own fallibility. We should allow the same to economists, politicians and even bankers. There are three cardinal virtues: faith, hope and charity. The greatest of these is charity. As an atheist I love religious quotations. They sometimes make sense.

Regarding the crooks and racketeers, I wonder two things:
if moral philosophy should be taught in schools and;
if screening the population for psychopathic and sociopathic traits would help?

Prof

Comparative advantage is about a lot more than labour costs. Siemens might have economies of scale or produce better quality more reliable trains. It may have some combination of more highly skilled labour, better management, better machinery or access to cheaper capital. I don't know if any of these things apply but they should be considered. Anything which makes it easier to make or grow or invent in one place or one company is a comparative advantage. Computer and software firms locate in California's Silicon Valley or, to a lesser extent in Cambridge UK because of the cluster effect of suppliers, intellectual crossover and so on.

Incidentally, Bombardier is a Canadian company which, like Siemens, has factories in the UK.