A RECENT American report that is reflected across the developed world on financial situations stated that policymakers lacked full understanding of the financial system that they oversaw.

It is clear from the report that the information used to make economic decisions failed to match the basic concept of economics – that is, to have perfect knowledge of situations.

This may not be achievable in practice, but research indicates situation faults. The reduction in take home pay causes a fall in the demand for goods and services which in turn reduces incomes further is just one example.

Firms that took on too much risk reflect the fact that 80 per cent of management in the UK is faulty to a greater or lesser degree. Banks that failed to seek enough information to check business plans made loans that could not be repaid.

Getting the balance between supply and demand to the right level in all the financial workings requires an understanding of the economics.

It certainly will not be helped by cuts in public sector jobs, but would be by investment in public works.

We need to use our abilities to care for the community and not just to seek personal wealth.

Bill Morehead, Darlington.