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A red light on the dashboard

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On New Year’s Eve 2006-7, something unexpected happened.  For most of the previous two decades, most of the pubs where I live had operated a system where they gave tickets to regular drinkers in order to limit the number of people seeking entry.  This was a problem because one couldn’t secure tickets for guests.  And since my relatives only stayed over for the holidays, it left us to seek out the few pubs that did not operate a ticket policy.  And in most years, these pubs would be packed to the rafters.

When we set out in the last couple of hours of 2006, we fully expected the same crowds as the year before.  So did the pubs, apparently, because they had hired security to control entry – something that was common for British nightclubs but rare for pubs.  What none of us had anticipated though, was that the pubs would be almost empty!  Nor was it just one or two pubs.  Everywhere we went it was the same story.  Indeed, on one occasion the security staff hired to keep the masses out tried hard to encourage us to come in.  Quite simply, tens of thousands of people who had previously gone to pubs to celebrate New Year, stayed at home in 2006.

To me it was a warning sign that something unpleasant and dramatic was about to happen to the economy.  It wasn’t that the beer had risen in price – although supermarket beer had long been cheaper than pub beer.  It was an indicator of something much more profound.  Coming on the heels of rising fuel prices and the central bank decision to begin jacking up interest rates, it was a signal that people’s standard of living had been impacted to the point that discretionary spending was being seriously curtailed.

I don’t remember the establishment media reporting on it.  Nor was government particularly concerned.  And the central bank was still arguing that interest rates needed to rise further to head off inflation.  It was, however, a clear harbinger of the collapse of the banking and financial system which would begin later in 2007 with the run on Northern Rock, and would come to a head in 2008.

Changes of behaviour of this kind, then, can be a far better predictor of problems to come than official news reports or official – and heavily massaged – government statistics.  Which is why a story today on the Wales Online website rang an alarm bell for me:

“The cheapest and most expensive petrol prices across Wales this week…”

The details of the story are uninteresting.  Indeed, it doesn’t even report the fact that UK petrol and diesel prices reached a record high this month.  What is important is that the media – and particularly local and regional outlets – have run such stories on previous occasions such as 2000, 2008 and 2013, when rising fuel prices have preceded general recessions. 

Of course, one swallow doesn’t make a summer, and one story highlighting the cheapest local fuel is not concrete proof that a recession is on the way.  It does though, tell us that someone in the news organisation – a reporter or an editor – has been moved to believe that this is a feature that people will want to read.  The reason could be as mundane as a few people in the office, or the relatives of those people, moaning about the increasingly high price of fuel.  But more importantly, it points to a change in something economists call “marginal utility” – a posh term for how much something is worth.

When it comes to fuel, we each strike an often subconscious balance between price and convenience.  For example, because they operate a near monopoly, British motorway service stations have a long record of overcharging for fuel.  While the average price of diesel is £1.47 per litre, as one of the commentors on the above article reports:

“You forgot Esso services Pont Abraham on the M4… Diesel £1.65… I kid you not!”

It is often cheaper to exit the motorway and head for a nearby supermarket, where fuel will be .20p per litre cheaper.  Nevertheless, for many drivers, the inconvenience of leaving the motorway is not worth the saving on the price.  And so, motorway services stay in business despite their prices.

A similar calculation occurs when filling up locally.  Filling up on the way to or from work, or during a trip to the supermarket is worth the relatively small addition to the price of fuel, when compared to driving to the other side of the city solely to take advantage of a few pence off a litre of fuel.  Moreover, on previous occasions when people have begun to make such trips in order to save money, they have also tended to run the tank close to empty – an additional inconvenience – in order to maximise the saving when they fill up.

The point is that people only begin to refuel in this way because the need to save money has overtaken the desire for convenience.  And like the empty pubs on New Year’s Eve 2006-7 – and again in 2007-8, this is a sociological phenomenon which, while entirely unnoticed by central bankers and politicians, tells us that we are once again facing a serious economic downturn… because if, as it appears, our collective discretionary spending is already in freefall; then another crash cannot be far behind.

As you made it to the end…

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