Consciousness of Sheep
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Making any kind of prediction is always risky… especially about the future. Nevertheless, there is a growing consensus that a recession is on the way – I would argue that had it not been for rigged official data, a recession would have already arrived. Less clear though, is what kind of recession we are going to get. Will it be one of those brief and shallow downturns which most people barely even register or, most likely, is it going to be deep and long?
Within the official data – which is a measure of what the economy was doing in the summer, not what it is doing today – we find a few disconcerting indicators which decision-makers appear to have overlooked. The number of vacancies – which, remember, the Bank of England economists feared would presage an inflationary wage-price spiral – had fallen significantly from last year’s high… even before the summer tourist season had come to an end. The number of hours worked – a better measure these days than rigged unemployment data – continues to fall – a sure sign that employers are having to cut workers’ hours as business slumps. Insolvencies are rising again – although as of August, not yet to a point to be of concern to mainstream economists.
There are also what we might call “common sense” indicators that the economy is slowing. The rise in purchases of body-warming goods such as sweaters, hot water bottles and blankets, together with the high demand for firewood and chimney sweeps, points to a population which intends making serious cuts to its energy consumption… even as higher prices are only just kicking-in. The big decline in second hand car sales also suggests an economy in which consumption and credit are in steep decline.
Perhaps the most tragic, given that Britain is supposedly a nation of animal lovers, is the big increase in the number of pets being abandoned, together with the big decline in people taking in pets from rescue centres. Although Britain’s animal rescue charities make a virtue of not euthanising unwanted pets, it is surely only a matter of time before they will be forced to do so, as their costs spiral upward even as donations dry up.
These though, are only indicators of an impending downturn if you take them seriously. Unfortunately, government and central bank economists do not, because they remain fixated on neoclassical economic models which are both mathematically exquisite and fundamentally wrong. And so, rather than taking their feet off the accelerator before the economy crashes, it is only when we witness widespread redundancies, a housing crisis and several banking and financial sector crashes, that they are likely to reverse course. By which time it will be far too late to prevent economic and political chaos.
It is for this reason that we ought to take seriously Friday’s announcement from Royal Mail. As Dearbail Jordan at the BBC reported:
“Royal Mail has announced plans to cut 10,000 jobs by next August, blaming ongoing strike action and rising losses at the business. The postal company said it will begin notifying workers of its plan, which includes up to 6,000 redundancies. Apart from the redundancies, the firm will cut roles through natural attrition, for example by not replacing workers who leave.
“Royal Mail also said it expects its full-year losses to hit £350m. It said this included ‘the direct impact of eight days of industrial action’ as well as lower volumes of parcels being posted.”
Mention of the current industrial dispute with the Communications Workers Union implies that the final job losses are still up for negotiation. However – as I have argued previously – strike action in a slowing economy often benefits employers by saving on wage costs at a time when business is slacking anyway. And while it is possible that Royal Mail will lose customers as a result, this is unlikely to be permanent in a market in which price and location are more important than loyalty.
Far more worrying, then, is Royal Mail’s acknowledgement of falling custom. Because, despite the company performing a valuable social service by delivering important letters and documents – such as medical information, legal papers and service contracts – its main business is servicing other businesses. We might not, for example, welcome the mountain of junk mail delivered to our homes. But this form of business advertising helps keep Royal Mail profitable without making our letters too expensive to send. The other arm of Royal Mail’s business being business-to-business and business-to-consumer parcel deliveries.
In one sense then, Royal Mail is like the proverbial canary in the coal mine. It’s announcement of a business slowdown great enough to warrant up to 10,000 job losses, indicates a big slowdown across the economy. Put simply, businesses are sending out fewer goods and are cutting back on their advertising budgets. And this, in turn, indicates that households and businesses across the economy have been curbing their spending. And in its way, this is also a backward-looking indicator – Royal Mail’s losses could get far worse as winter draws in and energy prices spike upward.
At this point, government and central bank are stuck. Further interest rate rises together with austerity cuts threaten a massive collapse in demand and a crisis on a scale not normally seen outside the developing states. On the other hand, further government spending – especially if it is unfunded – together with interest rate cuts risk a run on the currency which would seriously undermine the UK’s balance of payments… most likely making essential imports like food and energy unaffordable. One reason why we now have a crisis and paralysis at the heart of government is precisely that there is no politically acceptable way out of the trap. All that remains is to allow the UK economy to shrink – either by inflating its value away, or by allowing the mother of all asset crashes to render most of it worthless anyway.
One way or another, we are all joining the infamous “de-growth coalition” now.
As you made it to the end…
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