I've nearly finished reading the terrific new book by BBC presenter Evan Davis, Made in Britain (haven't yet caught up on the TV series). The fact that I agree almost entirely with Evan means it is obviously an excellent book, not to mention a good read – it almost made me miss my tube stop yesterday.

In a nutshell, it gives a balanced perspective on the strengths and weaknesses of UK manufacturing. The strengths include some significant advanced manufacturing sectors, quite a few thriving niches, and real strengths in innovation and creativity. Together these mean that although employment in manufacturing has fallen dramatically over recent decades, and its share in the economy has also declined sharply, the level of output, and consequently the productivity of UK industry, has risen. We are nowhere near as weak compared to other leading industrial nations as we typically think. Needless to say, there are weaknesses too, all of them well-known, including the national mania for investing in housing and the unbalancing effect of our financial services industry.

I particularly like the clear logic the book applies to the natural evolution of the economy from primary to secondary to tertiary activities, and the consequence of productivity growth in the dynamic sector of its day for that sector's future size relative to total GDP and employment. I also applaud the book's calm insistence that trade with China – its cheap consumer goods for our investment goods and services – is on balance a good thing for both the Chinese and the British. I haven't seen the calculation of the likely costs and benefits set out in such an accessible way anywhere else.

One chapter that is particularly intriguing looks at the psychology of manufacturing. Why do we worry particularly about the health of manufacturing? Why is there something especially satisfactory about doing a job whose output is tangible? The book compares the innate job satisfaction of working on building aircraft at BAE Systems versus selling advertising space on a commercial radio station. It argues that the tangible must have a special psychological status, and references books on craftsmanship. There is obviously something in this – it's a constant trope of the literature of work. Although all the increment in GDP since around 1980 has been intangible and literally weightless (see The Weightless World – pdf), and although many people inveigh against materialism, physical stuff seems to have a privileged status in our minds.

But this isn't the whole psychological story. Some service sector jobs also have a privileged status in most of our minds – teaching, nursing, and caring, I would suggest, perhaps also being a musician or an artist – but not working as an actor or a lawyer or banker. And some manufacturing jobs would be seen as inferior too, depending perhaps on how they are labelled. Working on an aircraft engine is one thing, or working as a lathe operator, but what about working on the assembly line in a food processing factory? This carries over to our views about different sub-sectors themselves, the caring professions as opposed to the exploitative ones, the romantic engineer as opposed to the pathetic chicken-plucker. I don't have an uber-theory about the status of these different economic activities, but my ideal economy would have a lot of us earning our living making music, dancing and painting – and making TV and radio programmes, creating beautiful clothes and devising delicious meals –  as well as caring for children and the sick. And I'd be happy for my sons to become engineers, or economists, but definitely not investment bankers.

One of Amartya Sen's consistent themes is the importance of process justice as well as justice in outcomes. It is, he argues forcefully, the reason why freedom is so important an aspect of human well-being. This theme, which features in all his work but especially The Idea of Justice, is applied in a new volume he has edited, Peace and Democratic Society, just out from Open Book Publishers. (It can be read for free online, important to Sen with this volume so readers in India could access it freely, or bought as a download or physical volume.)

The introductory essay draws on the findings of the
Commonwealth Commission on Respect and Understanding, chaired
by Sen. In this new essay Sen underlines the importance of democracy as a process, rather than as a collection of formal institutions as it is conventionally understood. Simply put, democracy is the best set of arrangements for reaching a collective agreement, the best hope of averting violent conflict.

The report has one chapter specifically on the question of poverty, inequality and violence. It focuses on inequality rather than poverty as a contributory factor, and specifically the inequality of economic outcomes for specific groups when this forms one of several forms of unfairness or exclusion affecting specific groups. As it notes, the same degree of poverty, and even the same degree of inequality, is consistent with different patterns of violence. There is no simple formula linking the economic conditions of a society and the prevailing level of violence.

A couple of the other chapters, which I've not yet read, also look interesting. I'm not sure how fruitful the conclusions will prove. The recommendations are rather general, and it's always those who least need to bother who sign up first for motherhood and apple pie. But the key point, surely, is to focus on the process and keep on talking.

I've been finishing off a book of essays by J.B.Priestley, Delight. They're about all the little things that please him, and were first published in 1949. (It bears some similarities to Philippe Delerm's The Small Pleasures of Life, albeit the small pleasures of an elderly Yorkshireman differ from those of a middle-aged Frenchman.) This argument, in an essay titled 'Fountains', struck me as a good moral for our own austere times:

“What is the use of our being told that we live in a democracy if we want fountains and have no fountains? Expensive? Their cost is trifling compared to that of so many idiotic things we are given and do not want. Our towns are crammed with all manner of rubbish that no people in their senses ever asked for. By all means let us have a policy of full employment, increased production, no gap between exports and imports, social security, a balanced This and a planned That, but let us also have fountains.”

I think J.K.Galbraith (“private affluence, public squalor”) would heartily approve.

The European Union's denial of the reality of Greek insolvency is leading to extraordinary political contortions. The leaders of France and Germany recognize that if they don't prevent a default by the Greek government by offering it new loans – which in turn will not be repaid – they will have to bail out their banks again. That could lead to a reprise of the autumn of 2008, when global payments systems almost failed as interbank lending came to a halt. But they can't say this to their voters – better to allow them to be angry at the Greek government rather than their own. Meanwhile the Chinese authorities are sufficiently worried about the world financial system that they have offered support for a new Eurozone bailout, and it isn't as if they don't have their own economic and financial concerns. It is absolutely clear that an orderly Brady Bond style restructuring for Greece, Portugal and Ireland is needed.

Meanwhile, the UK authorities have warned that they've got no idea of the extent of bad loans on property in the domestic banking system, nor whether banks are holding adequate capital against eventual defaults. What's true of banks in the UK economy will be true in the US and Euro area. The financial crisis is not over. Just as in the 1930s, it will prove to be a much longer process to work out than either hoped or feared.

This context makes a new book about debt in America, Debtor Nation: The History of America in Red Ink by Louis Hyman, incredibly timely. The book is largely a history of the evolution of debt from the start of the 20th century, from a small scale phenomenon to the central organising principle of modern capitalism. It traces both the personal opportunities the emergence of widespread debt offered to individuals and small businesses in the US – the fuel of the American dream – and on the other hand the dangers. One of the real strengths of this book is the fact that it sets out in detail the interplay between government action to structure, regulate and grow markets, and the growth of debt. Successive chapters look at key episodes and highlight the paradox that consumer protection was a frequent motive for growing 'formal' debt instruments. There is a lot of informative detail, much of it new to me.

From the 1970s onwards, however, it has become increasingly clear that the overall burden of debt held by US consumers could not be repaid. Hyman does not cite Raghuram Rajan's thesis in Fault Lines that consumer credit became essential to paper over the strains created by growing inequality, but it is certainly relevant. Indeed, Debtor Nation specifically looks at the race and gender dimensions of credit policies.

One of the strengths of Debtor Nation is that it makes clear the role of the state in the growth of the debt-driven economy – albeit a role whose consequences were never fully recognized. For example, Hyman writes: “Mortgage loans may have expanded available housing, but they also taught consumers to owe vast sums of money to impersonal lenders, to say nothing of the long-term devastation exacted on many American cities as whites fled to subsidized suburbs.” (p283) In the end, the Great Society dream of owner occupation ended in the sub-prime debacle.

For Hyman, the key policy question now is whether the 'crisis of over-accumulation' that caused the current problems, as money sloshed around the world looking for a good yield, can be turned to one of capitalism's recurrent eras of investment in new productive assets. (It's a cyclical thesis that has echoes of Carlotta Perez's book, Technological Revolutions and Financial Capital.) He concludes: “The current credit crisis is not really, at root, about credit at all, but about the opportunities for capitalist investment.” (p287)

While I agree with this point, I believe the credit crisis is about credit as well, in the original sense of trust. Trust is fundamental to any economy that gets beyond barter. The increasingly intangible, knowledge-based, globalized economy depends to an extraordinary extent on trust. Trust, in turn, relies on personal integrity and a sense of shared responsibility for the well-being of all. But modern credit has, following its marketization and securitization since the 70s, drifted away from the person-to-person trust that had previously characterized most lending. In that context of large-scale anonymous transactions, the short-termism, greed and irresponsibility of so many people working in finance and large corporations is the ultimate root of the credit crisis. Not only has the trust vacuum not been addressed yet, but most political leaders have not yet found the courage to articulate it. So, to repeat myself, the crisis continues.

This morning I gave a talk to local sixth formers, half way through their economics A levels, about the contrasting US and Chinese economic systems, showing them snapshots from my trip to Beijing last week. One of the factoids that had stuck in my mind, illustrating the partial nature of China's development, came from my reading up. In John Pomfret's engaging book Chinese Lessons he sits in on a friend's driving lesson. It proves terrifying, the teacher little more able to drive than the pupil. Pomfret notes that China has double the US death rate in automobile accidents despite having one tenth the number of cars. Staggeringly, for Chinese people between 15 and 45, road fatalities are the principal cause of death. He writes:

“Driving tests? Many police departments will issue driver's licences to anyone with connections and the extra cash.”

For the equivalent of $3 a friend who has never even got behind a wheel is given a license.

The moral of course is that development is about so much more than GDP. The institutions and social norms prevailing in a society both affect its economic growth and reflect the non-GDP aspects of well-being.

When I took a vote in the classroom, an overwhelming majority said they would choose to live in the US rather than China. On the question of whether China's phenomenal growth will continue, it was about 50-50.

John Pomfret is 2nd left, front row.

* As an aside, I gathered from the teacher that there's a real buzz amongst pupils about economics at the moment, with lots of them choosing to study it at A level and applying to university to read it. Judging from the students I spoke to, they are massively interested in everything happening in the world at the moment. We got on to Greece and the Euro, UK spending cuts, American deindustrialisation, poverty in Africa, the financial crisis and the banks, financial literacy…. It was very exhilarating. So university teachers out there, please, please don't beat the interest and enthusiasm out of these budding economists when they get into your hands in a year's time!