Chickens (headless)
I’ve kept a copy of the Guardian’s “What might happen next?” guide to the recession from 18th October (http://www.guardian.co.uk/business/2008/oct/18/creditcrunch-recession). Julia Finch and Ashley Seager set out five possibilities, ranging from a ‘short, sharp shock’ to ‘Armageddon’. A photocopy is stuck somewhat haphazardly in the sightline to the right of my screen, and from time to time as the news rolls in, I glance and wonder how it’s going.
I assured anyone that asked me in the late summer of 2007, when it was still called a sub-prime mortgage crisis, that this was The Big One. A great unravelling had begun, I asserted: twenty years or more of unregulated debt-funded turbo-capitalism had run into the buffers. When the UK government nationalised Northern Rock I explained to the same audience that much, much more was still to come.
Now that it’s a recession, or a crunch, or just a fucking mess, the news keeps on rolling in, and much, much more has indeed come. A key sign of just how much has come is how hard it is to remember last week’s bad news, or to try to choose the five most remarkable things that have happened. It is possible, in early December 2008, for news of, oh I don’t know, half a million people losing their jobs in a single month, or the US stockmarket falling by the second highest percentage amount ever recorded, or the value of the pound reaching a record low, it is possible for this kind of news not even to make the main headlines.
Here’s a few highlights from the last few months:
- in the UK, interest rates were lowered by 1.5% points, and before the paperwork had even arrived on the mats of the nation’s mortgage holders, rates dropped again by 1%;
- several major financial institutions, in the US and UK - Fannie Mae, Freddie Mac, Lehman Brothers, HBOS, Bradford & Bingley – have either collapsed, been taken into public ownership or leant billions of taxpayers’ pounds;
- house prices are falling in the UK at double digit rates;
- the US government tried to announce an $800bn rescue package for the financial sector, failed, tried again, succeeded, but made no difference;
- the entire US car manufacturing sector is on the verge of bankruptcy;
- the UK government has abandoned fiscal propriety, cut VAT and projects the government’s borrowing requirement, on optimistic assumptions about growth, to sail past £100bn next year;
- many companies are experiencing unbelievable changes in fortune, not simply sales that are a little lower than the previous month or the previous year, but total collapses in demand – in the third quarter of 2007, Volvo sold just fewer than 42,000 trucks in Europe; and in the same quarter of 2008 they sold – wait for it – 115. ONE HUNDRED AND FIFTEEN! Normal rules have been totally suspended;
- the outgoing US president convened a global summit to sort everything out, and precisely nothing happened;
- according to today’s news, more than half a million Americans lost their job in November;
- commentary that ‘fiscal injections’ aka Keynesianism would be required has now been overtaken by the extraordinary euphemism “quantitative easing” – this means, in fact, printing money and giving it away. I kid you not.
Absolutely every think tank, policy wonk, media commentator, pundit, department, agency and government has waded in with their views on how terrible it’s going to be, and their proposals for what to do about it. Some of these proposals sound sane, some sound mad, some defy satire. NESTA – “a unique and independent body with a mission to make the UK more innovative” – issued a press release recently explaining that the solution to the problem was, er, innovation.
We have heard innumerable times that we are in uncharted territory, and it shows. Slash interest rates, lend trillions of dollars, buy up the US car market, employ millions of people in a ‘green task force’, let’s give it a go. Despite more than 200 years of economics, absolutely nobody has any clue at all whether – for example – a cut in VAT will cause consumption to rise.
So I’ve updated my view. Eighteen months ago, by The Big One, I meant that the era of debt-fuelled, consumer-led growth had come to an end, and a protracted period – at least five, and possibly ten years – would be required for all the various agents in the system both to clear the backlog and to develop new protocols (e.g. spending on the basis of money you’ve saved, investing on the basis of accumulated profits, trading on the basis of real things rather than derivatives).
Now I’m thinking that something even more profound may happen. I think it’s possible that the very idea of consumerism might collapse. I think it’s possible that the logic of the arguments from sustainable development – that it is western levels of consumption that most endanger the planet’s eco-system – could mesh, for the first time, with the day-to-day experiences of millions of consumers over the next few years. These millions of consumers are going to stop buying stupid volumes of useless stuff – and they are going to discover that this does not make them miserable, or empty, or pariahs. It is possible that they will discover that living with less – living with enough – is actually quite good, and has the extraordinary additional benefit of saving the planet.
The pressures to stop this happening will be immense, of course. Trillions will be spent to keep the old show on the road, and corporations are wily and resourceful beasts with long memories and deep pockets. But maybe, just maybe…
Anyway: several years of rollercoaster weirdness guaranteed. Hold on to your hats.
I assured anyone that asked me in the late summer of 2007, when it was still called a sub-prime mortgage crisis, that this was The Big One. A great unravelling had begun, I asserted: twenty years or more of unregulated debt-funded turbo-capitalism had run into the buffers. When the UK government nationalised Northern Rock I explained to the same audience that much, much more was still to come.
Now that it’s a recession, or a crunch, or just a fucking mess, the news keeps on rolling in, and much, much more has indeed come. A key sign of just how much has come is how hard it is to remember last week’s bad news, or to try to choose the five most remarkable things that have happened. It is possible, in early December 2008, for news of, oh I don’t know, half a million people losing their jobs in a single month, or the US stockmarket falling by the second highest percentage amount ever recorded, or the value of the pound reaching a record low, it is possible for this kind of news not even to make the main headlines.
Here’s a few highlights from the last few months:
- in the UK, interest rates were lowered by 1.5% points, and before the paperwork had even arrived on the mats of the nation’s mortgage holders, rates dropped again by 1%;
- several major financial institutions, in the US and UK - Fannie Mae, Freddie Mac, Lehman Brothers, HBOS, Bradford & Bingley – have either collapsed, been taken into public ownership or leant billions of taxpayers’ pounds;
- house prices are falling in the UK at double digit rates;
- the US government tried to announce an $800bn rescue package for the financial sector, failed, tried again, succeeded, but made no difference;
- the entire US car manufacturing sector is on the verge of bankruptcy;
- the UK government has abandoned fiscal propriety, cut VAT and projects the government’s borrowing requirement, on optimistic assumptions about growth, to sail past £100bn next year;
- many companies are experiencing unbelievable changes in fortune, not simply sales that are a little lower than the previous month or the previous year, but total collapses in demand – in the third quarter of 2007, Volvo sold just fewer than 42,000 trucks in Europe; and in the same quarter of 2008 they sold – wait for it – 115. ONE HUNDRED AND FIFTEEN! Normal rules have been totally suspended;
- the outgoing US president convened a global summit to sort everything out, and precisely nothing happened;
- according to today’s news, more than half a million Americans lost their job in November;
- commentary that ‘fiscal injections’ aka Keynesianism would be required has now been overtaken by the extraordinary euphemism “quantitative easing” – this means, in fact, printing money and giving it away. I kid you not.
Absolutely every think tank, policy wonk, media commentator, pundit, department, agency and government has waded in with their views on how terrible it’s going to be, and their proposals for what to do about it. Some of these proposals sound sane, some sound mad, some defy satire. NESTA – “a unique and independent body with a mission to make the UK more innovative” – issued a press release recently explaining that the solution to the problem was, er, innovation.
We have heard innumerable times that we are in uncharted territory, and it shows. Slash interest rates, lend trillions of dollars, buy up the US car market, employ millions of people in a ‘green task force’, let’s give it a go. Despite more than 200 years of economics, absolutely nobody has any clue at all whether – for example – a cut in VAT will cause consumption to rise.
So I’ve updated my view. Eighteen months ago, by The Big One, I meant that the era of debt-fuelled, consumer-led growth had come to an end, and a protracted period – at least five, and possibly ten years – would be required for all the various agents in the system both to clear the backlog and to develop new protocols (e.g. spending on the basis of money you’ve saved, investing on the basis of accumulated profits, trading on the basis of real things rather than derivatives).
Now I’m thinking that something even more profound may happen. I think it’s possible that the very idea of consumerism might collapse. I think it’s possible that the logic of the arguments from sustainable development – that it is western levels of consumption that most endanger the planet’s eco-system – could mesh, for the first time, with the day-to-day experiences of millions of consumers over the next few years. These millions of consumers are going to stop buying stupid volumes of useless stuff – and they are going to discover that this does not make them miserable, or empty, or pariahs. It is possible that they will discover that living with less – living with enough – is actually quite good, and has the extraordinary additional benefit of saving the planet.
The pressures to stop this happening will be immense, of course. Trillions will be spent to keep the old show on the road, and corporations are wily and resourceful beasts with long memories and deep pockets. But maybe, just maybe…
Anyway: several years of rollercoaster weirdness guaranteed. Hold on to your hats.
[If there's a photo down
here it was added August 2017 as part of blog refresh. Photo is either
mine or is linked to where I found it. Make of either what you will.]
Comments
I suppose there’s little harm in seeking a silver lining to the cloud, even if the idea of “the good recession” - a notion recently popular in certain sections of the commentariat – may not appreciated by those unfortunate enough to lose their jobs.
But it is a seductive thought isn’t it – “the chastened consumer”? People see the error of their materialistic ways, seek more meaningful lives and save the planet at the same time. Didn’t the Archbishop of Canterbury say the same thing today? Perhaps he’s been reading “The Economics of Enough”? Strange times, strange bedfellows...
Teasing aside - and accepting that I hold out the same hope as you do – let me express some practical reservations. I should start by making it clear that I don’t cleave to the view that “the system is the problem”. The system – liberal market capitalism in this case – is a morally neutral mechanism that efficaciously delivers what people desire (or think they desire). It does not – I insist - dictate those desires. By a process of trial and error, capitalism uncovers those desires and then robotically, with ever greater efficiency, delivers the goods at ever lower costs. Unless, that is, a negative feedback mechanism - taxation, regulation etc. - is put in place to stymie the process, and ensure we don’t suffer from a surfeit of our desires delivered.
If you accept this view, two immediate problems become apparent with idea of “the chastened consumer”. Firstly, getting people to change their visceral desires is not going to be easy. OK, it appears that now we’re heading into a slump, Tesco, Asda et al are spotting significant shifts in the spending patterns of the UK consumer, especially away from frivolity. See, for instance...
http://www.ft.com/cms/s/0/7a28c58c-c7eb-11dd-b611-000077b07658.html
(I particularly like the bit about gimmicky Christmas presents being replaced by jumpers)
But will the UK – or any western - consumer continue this pattern when better times return? I suspect not. Haven’t all the psychologists and “happiness” economists clearly established that it is not absolute but relative wealth that determines our contentment? So when we consumers feel more optimistic and we’ve got the baser needs covered again, won’t we return to beating the Joneses? To impress our friends and neighbours, we’ll need a new BMW on the drive, a new bespoke kitchen and little Johnny packed off to the local prep school (“cos we do the best for our children”)?
My second concern is the implementation of those feedback mechanisms to control the machine. It is now clear that regulation of financial institutions has been woefully inadequate, allowing that part of the capitalist machine to run amok and – amongst other things – deliver more mortgages than was really wise. So, perhaps, it’ll be easy now to put in place those mechanisms to control our consumption? Well, I think it’ll be easy enough to slap controls – some of them probably ill-considered – on short-selling, derivatives and so on. Joe Public won’t complain; in fact he’ll probably applaud. But what happens if some politician tries to encourage environmentally responsible consumer behaviour by say, implementing a congestion charge around Manchester? Or billing households for the waste they place in their wheelies? Or equalising carbon taxation on aircraft? We may make friends with the Archbishop of Canterbury but such proposals will be implacably opposed by that voice of the people, the Daily Mail.
To conclude: the practical problem is people as consumers, in particular getting them to change their behaviour. It is a truth universally acknowledged amongst those who work in organisational change management, that a significant shift in behaviour requires “a burning platform” – clear and indisputable evidence that continuing with current ways will lead to doom. In this case, whilst it is clear to most consumers that it would be wise to modify or curtail personal spending in the current economic climate, I think the awkward fact is that a significant majority of western consumers is not convinced that climate change is a problem that requires a change in their behaviour. So when the economy eventually recovers, my bet is that we’ll return to the same self-defeating treadmill.
Happy Christmas.
Dr No