George Magnus Is a Leading Economic Advisor

George Magnus is a leading Economic Advisor at the UBS Investment Bank and has been a rebel around different systems in the world. George was employed in the UBS investment bank from 2004 till 2012. Along with being the senior economic advisor, he also played the highest level economist from 1997 till 2004. Prior to working for the UBS, he was working as a chief economist in SG Warburg from 1987 till 1995. Magnus is known for his work and cooperation with famous banks of both America and United Kingdom. The economist has authored many books and uploaded regular reviews which can be found at his website. George Magnus did his Masters in economics from the School of Oriental and African Studies from the University of London. He is also known for teaching the subject at the University of Illinois and University of Westminster.

The way he put out his thoughts and opinions challenged the already formed theories. A shocking result however was how his predictions regarding the financial crisis and the effect after it were quite close to reality. He was the man who had predicted the global crash that occurred in 2008. Magnus has a great significance for modern economies as he considers himself in a decent position to explain what is happening in the world. He tends to correlate the events of the economic world and the political world in one basket. Magnus thinks that up till the period of the 2008 economic crash, the ideals of a principal economy by John Maynard Keynes, Adam Smith and Karl Marx were ignored which thus led to doom in the end. (Magnus)

Magnus was the one who predicted that liquidity would not end of good. With assets such as cars, house and business linked to credit debt, the economic situation isn't one of stability. (Moulds) The economist also stated that the institutions for example banks that are so keen on lending out on loan could end up on a crisis itself. Despite Magnus being an advisor there, the UBS did not heed to the advice. One of the worst affects of the global crises was seen on the Swiss Bank. The bank gave out $42 billion worth of the assets, fired more than five thousand employees and also fired the chairman of the bank. (Moulds) Even though he had suggest that problems in the U.S. mortgage financing could go on to affect the entire world, he himself knew that no one would take it seriously. Just as the downfall accelerated, people became more and more aware of how right Magnus was.

The crisis that occurred in 2007-2008 was termed the worst since the Great Depression. It ended up in many people getting fired, foreclosures, evictions and the banks bailing out. The stock markets went in a down low and the big financial institutions were almost near collapse. Most of the economies of the world are interlinked with America. The growing trend of globalization and free trade led to economies all around the world being affected. Due to the crisis, the world economy was expected to be cut down by 0.5-1% in 2009. Even though the reduction isn't of such great proportion, this reduction in size was the first one to occur since 60 years. By the end of 2008, the economy of the United States contracted at a yearly rate of 6%. (Subrahmanyam)

The recession not only affected the economy at large, but also the average citizen. The unemployment rate reached a high of 6.5% in March 2009 only in America. The Japanese economy suffered to a great extent with the sharpest decline in economic production and unemployment worst since the Second World War. (Subrahmanyam) When discussing the global effects, trade was also affected to a great extent. Global trade declined to 9%. The reduction is trade is also evident by the number of new trade measures proposed ever since 2008. Out of the 78 changes suggested, 66 of them are suggestive of restrictions on World Trade. Out of those 66, 47 have already been implemented. (Subrahmanyam)

Seeing how the global crisis affected the economy so much, now the causes in context of Magnus's ideals should be reviewed. According to him, globalization isn't a key to great success of any economy. This can be explained in the fact that globalization hasn't developed in a steady manner. Thus the growth that has taken place due to globalization is steady and still not steady at times as well.

Adam Smith was one of the late economists to put forward the notion of globalization and free trade. Unfortunately, the idea of free trade that Smith put out isn't exactly what we think of globalization and free trade. A major basis for Smith proposing this form of trade was to increase friendship and sympathy among two nations. (Forsgren and Yamin) Even a middle school student would know that multinational companies and corporation's main objective isn't love or sympathy. Countries do trade with each other or multi-nationals have expanded their branches mainly to grow and increase profit. Subsequent to the global crisis, even Magnus criticized the idea of globalization and free trade. His article on crisis convergence talks about how the vulnerability of the United States economically paved way for many more crisis situations which will be discussed later.

Free Trade and Globalization leads to countries growing due to trade and taking advantage from division of labor. (Forsgren and Yamin) Where the idea of division of labor comes in, it should be noted that damage in one economy will not only affect labor in that country but also in the country it's trading with. This was evident from the fact that when American automobile industry declined so did Canada's. Where American employees were fired, Canadian citizens were faced with the problems of unemployment as well. Smith's idea of free trade included small entrepreneurs using the market to vend products. In this act, no one economy or trader would become the dominant one. Surely, now the scenario is much different. The invisible hand as mentioned by Smith is depictive of the political and government hold on market. The regulations and restrictions that come into play when trading occurs. These days, these restrictions are altered in trade by the dominant player leading to unfair results. With the rising inflation and currency losses, the damage to Western capitalist society also affected the east. Following the crisis, the export industries in China fell to a down low. Since China is a major exporter, with exports declining, the GDP was affected as well. The exports had been reduced to one third in the first quarter of 2009. (Magnus) This led to political disorder and protests and eventually inflation of food products as well.

The fact that Magnus had predicted the global crisis is that he initially was against the idea of falling interest. An article he published in 1998 went on to criticize how falling interest rates can have negative impacts as well. Magnus believes that the economy is not as stable that it would be able to hang on the thread of more and more debts. Even ten years after he had made these assertions, almost every big thing the average citizen would attain would be on debt. Cars, houses, business and even expensive technology can be bought on debt or credit. (Magnus 26)

He also went on stay that an unstable economy can never be caused by high interest rates. Magnus stated that low interest rates can be of use for a short-term use. There needs to be more awareness of the global economic conditions as well. In his article, Magnus stated that there could be a time when a full blown credit crunch this means that borrowers who are worthy of credit would be turned away from the banks and credit institutions. Magnus saw the idea of low rates would lead to a global crisis that has been discussed before. He was one of the few economists who differed in this way and saw the W. pattern of the economic performance.

A policy of free market ideology was placed in front which led to continuous growth. He believes that the idea of free market trade is one of the reasons why China can go on to rule the economic world today. He disagrees with the theories and structures set out by the previous economists. According to him, all their claims had made turned out hollow seeing how four decades of economic prosperity resulted in global inflation and weak globalization. In the years that America has progressed as an economic power, it has accumulated lots of debt. With the arguments between the bourgeois and the working class in the society, unrest and economic instability has further grown. (Magnus)

Magnus also stated that the in an economy, damage doesn't occur as fast as the credit losses or bankruptcies. (Mould) The way that banks and certain sectors of the economy collapsed is quite indicative of the aforementioned notion. .

Magnus does seem to agree with Marx's theory of the collapse of capitalism. Even though, the crisis in 2008 didn't led to a collapse of the capitalism. The way Marx analyzed the misunderstandings between the labor and capital and it causing political and economical unrest politically. Where Smith was sure that public institutions were necessary to good working economy, Magnus didn't agree with notion. As mentioned earlier, Magnus is more inclined towards Marx's economist theories as opposed to Smiths. In his opinion, the economic crisis of 2008 revealed due to the environment created in different economies simultaneously. The house hold debt to GDP augmented and kept on increasing.

The theories and works of Magnus are strongly affected by and are somewhat in favor of Marx's work as well. Just as Marx pointed out, there would be conflict between the labor and capital. He also emphasized on the fact that one sector of the society would have accumulated wealth and the other side would be living in poverty. As is mentioned above, the economic crisis led to a lot of unemployment. The U.S. companies in order to increase their profit and cut down their costs didn't think twice about firing so many people. (Subrahmanyam)

Apart from his works on his works regarding the economic crisis, Magnus is also concerned with the growing population. With his theory put forward, there would be a decrease in the working population in the upcoming years. When it comes to population growth, Karl Marx considered population growth was not a factor in causing poverty. His work seemed to differ from that of Thomas Malthus, who considered that misery and bad economic conditions prevailed due to growing population. Marx argued that the misery and poverty is there due to messed up social structure and extreme capitalism. The crisis that occurred was an instance where capitalism didn't prosper very well. The idea of free economy and low interest rates led to miser.

According to Magnus, much more focus should be given to the production of better institutions. The social structure and the economic values need to be looked into and reanalyzed. However what Magnus believes is differed from Malthus. Those who follow or are more affected by Theories put out by Malthus are in panic and concerned as to what will happen in the future. Maybe his worries are better linked to environmental and natural resources. However, when keeping the economic concerns and economic disparities in mine, population is such a significant causative agent.

Magnus is in sync with Marx's theory of over production and under consumption as well. This is easily explained by the fact that when people are not in a good situation economically, they won't really have much of a buying power as well. The economies following the 2008 crisis were in situation of unrest. Where there was financial insecurity, industries such as housing and automobile sector remained bellow their 2006 peaks. (Magnus) This was largely due to the increased purchasing of houses in turn. Magnus proposes and is sync with Marx on the fact that there shouldn't be over production of a single sector. This meaning that the economic growth needs to be split. If the GDP is largely dependent on one industry or sector, then problems can emerge when that sector crashes.

Paulson stated earlier that if one country has to recapitalize its banking sector, it is evidence of an economic failure. Subsequent to the failure, both United Kingdom and United States went on re invest in their banks. Reagan stated that Government has a long standing role in the economics. As for the future of the economy, he believes that the Labor's plan to take into Keynesian economics will work out. Magnus is aware that the crises that hit the American and global economy will not blast into a depression like the one that occurred in the 1930s. The economic advisors and planners did learn some alterations to the structure following the Great Depression. It is true that John Maynard Keynes work did gain more momentum when the Great Britain was not able to stabilize subsequent to the depression. (Johnson&Cate).

There has been seen some similarities in his theories and those of Keynes, as he says that the depression of 1930s wouldn't have hit its peak if Keynes method was put in action. Keynes proposed different theories about interests and unemployment. According to him, wages should be settled in cooperation with both the employer and employee. The wages were thus not only affected by monetary factors but also by environmental factors as well. (Johnson, Ley, and Cate) Another thing he hinted on was the fact that saving did not prevent any economy from recession. Thus Magnus accepts and adds to this theory that even during the recession, the people should borrow their way out of the problems. This could be looked at in a more logical perspective if we bring the government into the picture. Subsequent to the crisis that took place, government took out money from the Federal Reserve and bought huge amounts of mortgage backed systems. A lot of the assets that were stuck due to obstruction in the banking system led to relief all thanks to the U.S. Federal reserve. Thus the government gave in money for the growth of the private sector so that would then go on to stabilize the economy. Here, the whole idea of invisible and visible hand comes in. Saying that when the business sector needs the government, the hand becomes charitable and benevolent. This as opposed to when everything is fine; the government appears as a hindrance in the way. (Subrahmanyam)

The modern economic outlook suggested by Magnus is surely an alarming one to the United States. He argues that the changes that were started in China by Deng Xiapoing in 1978 paved way for a lot of progress. In just a matter of some decades, China has gone to become the largest exporter in the world today. It has the second largest economy and owns a total of three trillion dollars of foreign financial assets. (Magnus) These figures should set off the alarm for United States and the Western countries especially after the crisis that occurred. If China continues to progress at the rate that it is, the GDP of China will bypass United States by 2030 or maybe even before. Magnus however puts in the idea of China growing old at a faster rate when compared to the United States. Magnus states that in 2050, there will be 2.5 people to support one old citizen as opposed to ten people today. Even though a setback in China's path, there is no guarantee that it won't get rich before it gets old.