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About those chickens…

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When you see the same story repeated, almost verbatim, across the establishment media, you can be sure you are dealing with some kind of soft propaganda.  No, this is not some kind of conspiracy theory.  It is merely the observation that in the era of social media, traditional news outlets have been crushed by declining audiences and a loss of advertising revenue.  As a consequence, journalists have largely been replaced with commentators who lack the skills, time and resources to investigate a story.

As an example, the coverage of the rapid rise and fall of the European Super League was largely reported as a tale of entitled and greedy rich men.  No doubt that is true.  But we had to venture over to online supporters blogs to find out that the story was really about club owners racking up billions of dollars of debts, using business models that simply don’t add up.

Most often, the establishment media do not investigate a story; they simply copy someone else’s press release.  Occasionally they will seek additional comment from someone considered “acceptable” in the mainstream (the so-called “Overton Window”).  But all too often, different media outlets just cut and paste the same sentences and paragraphs.  So it was over the past week with the various stories proclaiming the start of a golden age of economic prosperity (these stories merely the microwaving of the same claims this time last year).  According to the BBC, for example:

“Britain is set for a ‘sharp snap back’ in spending by shoppers as restrictions ease, according to experts at Deloitte.  The firm found ‘going to a shop’ topped the list of leisure activities people are most likely to do after lockdown.

“Separate research suggested that the UK’s economy will grow at its fastest rate on record this year, helped by the rebound in consumer spending.”

The same story ran across the establishment media and on both sides of the Atlantic.  People, whose movement and activities have been severely limited for months, have built up huge savings, creating massive pent up demand in the economy.  Once the restrictions are lifted, they will rush to the shops in their millions to buy up all of the things they haven’t been able to buy for the last year.  As a result, the economy will boom and “normality” will return in short order.

It’s a comforting story; and we can easily understand why financial sector corporations like Deloitte might want to believe it since, just like debt-burdened football clubs, their business model depends upon ever more of us borrowing ever more currency in order to buy ever more stuff.  But one question we might want to raise is what happened last year when the economy opened up after the lockdown?

There were, indeed, huge – albeit socially distanced – queues at the shops in the weeks after the lockdown ended.  There was also an uptick in tourism and in the hospitality sector.  This, you will remember, was touted as the “V-shaped recovery.”  But it wasn’t.  once people had bought some new summer clothes, got a haircut and enjoyed a couple of lagers and a curry, they largely retreated to their homes to await the next Covid-related government cock-up.

Nor did they have to wait long.  The government’s “Eat out and spread the virus about” scheme helped drive up the number of cases by the end of August; and the decision to allow more than a million students to move home in a single weekend in September guaranteed a second wave which resulted in Christmas being cancelled and the prolonged lockdown and restrictions that we are still living with.

Given last years’ experience, there is no reason to believe that people are going to be any more inclined to spend now than they were then.  But even if they do, the assumptions being made about the economy we will be opening up into, are simply not grounded in reality.  You don’t get to throw a wrench into the fragile and complex superorganism that is the intricate web of algorithm-driven, just-in-time supply chains of the global economy, and expect it to still be there for your convenience 18 months later.

Even while we were locked up in our homes, disruption to supply chains had created shortages in everything from garden gnomes and pet food containers to computer chips and the wood pulp from which toilet paper is made.  In addition, the extractive industries that provide the raw materials and energy without which we would all die, curtailed their production last year; and will only bring it back after the global economy has reopened.  And even then, some of the resources – including the more difficult oil deposits – are not going to be reopened at all.  And to add to our coming woes, the shipping industry has been severely disrupted.  Capacity has fallen because some operators could only avoid bankruptcy by selling their ships for scrap.  Others have increased prices fourfold to compensate for the decline in demand from economies that were locked down.  Meanwhile, disruption has led to a massive surplus of containers in places where they are not needed, while the places which desperately need them cannot obtain them for love nor money.

Once again, we have to say goodbye to the establishment media and seek out more specialised online journals to get a more grounded picture of the mess we are in.  Greg Miller at American Shipper, for example, provides us with an insight into the coming disruptions on the other side of the Atlantic, as the demand generated by the Biden spending spree meets the reality of a severely disrupted global shipping industry:

“The number of container ships stuck at anchor off Los Angeles and Long Beach is down to around 20 per day, from 30 a few months ago. Does this mean the capacity crunch in the trans-Pacific market is finally easing? Absolutely not, warned Nerijus Poskus, vice president of global ocean at freight forwarder Flexport. ‘It’s not getting better. It’s getting worse,’ he told American Shipper in an interview on Monday.

“’What I’m seeing is unprecedented. We are seeing a tsunami of freight,’ he reported.

“’For the month of May, everything on the trans-Pacific is basically sold out. We had one client who needed something loaded in May that was extremely urgent and who was ready to pay $15,000 per container. I couldn’t get it loaded — and we are a growing company that ships a lot of TEUs [twenty-foot equivalent units]. Price doesn’t always even matter anymore’.”

Miller explains that the blockages and price increases today are not in response to post-lockdown spending, but rather to US businesses restocking; so that even if the anticipated spending spree is short-lived, disruption to shipping will continue for months to come.

On this side of the Atlantic too, shipping costs have risen to the point that importers have lost money on stock imported last year.  The non-perishable part of that stock is precisely what we are going to be buying as the lockdown comes to an end – so enjoy the low prices while they last.  By the autumn a large part of the increased cost of shipping is going to have translated into much higher prices.

Shipping is but one problem that reopening economies face.  As Peter Brennan and Tayyeba Irum at S&P Global note:

“As the economy reopens, revenues will recover with households well placed to ramp up demand. But with increased sales come increased operating costs as demand for materials, energy and labor rises, which could put pressure on margins.

“’[First quarter] results will reflect some of the sharpest year-over-year increases in transport, commodities and raw materials, gasoline prices, etc., in modern history,’ said Sean Darby, global chief equity strategist at Jefferies, noting that higher interest costs and labor wages will also rise in the coming quarters.”

The coming hike in fuel prices as demand outstrips global supply is of particular concern:

“The price of Brent crude oil, a price benchmark for international oil trade, has climbed as well. A barrel now fetches $66, up from a low of $19 in April 2020, resulting in higher energy costs for businesses…”

And, of course, this brings us back to the problematic business model that corporations across the western economies have.  In the energy-constrained post-2008 years, the trick has been to borrow currency to obtain new assets – like football teams, high street shop chains or shipping lines – with the acquired assets being used as security.  This done, operating costs are driven to the floor by crushing wages and working conditions and offshoring production to cheaper regions of the planet.  And then, owners borrow against the anticipated income from the hollowed-out acquisitions in order to pay themselves massive remuneration packages.  And so long as the economy continues to grow exponentially and doesn’t, for example, get hit by a global pandemic which shuts down 20 percent of the world’s economic activity, then the model can go on indefinitely.

Any serious journalist who wants to discuss the likely future of the economy post-lockdown simply has to include these likely crises in their analysis to be taken seriously.  Otherwise, their rose-tinted predictions are no more than the kid whistling in the dark as he walks past the cemetery.  There is an old saying that, “you shouldn’t count your chickens before they’ve hatched.”  In the context of these cheerleading economic boom stories, not only might there not be any chickens; but even the eggs may turn out to be rotten.

As you made it to the end…

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