Consciousness of Sheep
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After decades of experience proving that economists are wrong and that central bankers are the wrongest of all, how seriously should we take the latest IMF claims that the UK economy will avoid a recession? After all, even the establishment media have been keen to point out that the IMF appears to suffer from some pretty intense mood swings these days:
“The UK economy is expected to avoid a recession this year, the International Monetary Fund has said, after it sharply upgraded its growth forecast. It now expects the UK to grow by 0.4% in 2023, whereas last month it forecast the economy would contract by 0.3%.”
Ralph Schoellhammer at UnHerd points to the inconvenient truth that even in the current crisis alone, the IMF has built up a long list of erroneous forecasts. Moreover, much of the latest one – which points only to a growth rate that would be little more than a rounding error – is based on an optimistic understanding of the recent fall in gas prices following an exceptionally warm winter in the Northern hemisphere… taking no account of the warning from Saudi Arabian and Qatari energy ministers that Europe faces gas shortages and even higher gas prices. Indeed, what the IMF have given us is more likely a pseudo-forecast designed, like someone whistling in the dark, to keep our spirits up:
“A cautious observer would assume that the IMF wanted to increase economic confidence through a more upbeat outlook, which is understandable. Yet if experience is any guide, the next revision won’t be far away.”
In this, the IMF are far from unique. Western central bankers have been predicting “soft landings” and even no landing at all in recent months, even as they pursue interest rate rises which are – by definition – intended to generate the very recession that they keep pretending will not happen. It is notable, for example, that the apparent apology by Bank of England Chief Economist Huw Pill, for telling Brits that they were just going to have to accept being poorer, was for the way he said it rather than the intention behind his comment. As Bank Governor Andrew Bailey put it: “[His] choice of words was not right.”
Put simply, the central bankers are currently walking a tightrope between generating a managed recession – something they have never achieved – while maintaining sufficient public/political/business confidence to avoid it spiralling – 2008-style – into a full-blown economic collapse. Hence, the very last thing anyone wants is to have the Chief Economist wander off the reservation and tell everyone that they’re about to lose their shirts… and a lot more besides.
Insofar as their predecessors were attempting the same trick – and for much the same reasons – between 2006 and 2008, why on Earth would anybody trust them. After all, it is not as if we didn’t learn in the aftermath of that crash that the models that the economists use are so ungrounded in reality as to be positively dangerous… or – far worse – that the economists had no idea what money is or how it springs into existence. And while this latter has been partially fixed this time around, not one of them has the first idea how the international Eurodollar system operates to generate even more currency than domestic banks do via a similar process of issuing loans.
Might there, perhaps, be far better predictors of a coming recession than the clearly unreliable models used by economists? Certainly, the proprietary data available to the big corporate investors have proved reliable every time. And their collective response can be found in the inverted yields on government bonds which – for the first time in history – have been simultaneously inverted across the western states. Only once, in the mid-1960s, has a yield curve inversion not been followed by a recession. And even this can be misleading, because the 1960s inversion was followed by an eight-point fall in GDP.
In a similar manner, business surveys are likely to be more accurate, as they tell us what is happening today, and what steps business managers are taking in response. Purchasing Managers surveys – which have been lacklustre at best in the last year – pointed to a big decline in new orders, which we now see in falling global demand for both manufactured goods and raw commodities.
Closer to home, a recent ACAS/YouGov survey has found that a third of UK businesses expect to lay-off workers over the coming year:
“The poll revealed that two in five (41%) large businesses are likely to make redundancies and one in five (20%) small and medium sized (SME) businesses said that were likely to do so.”
While the lower figure for small businesses may appear to give grounds for optimism, they may rather reflect the inability of a small business to lose workers without rendering the business itself unworkable. That is, these businesses are more likely to go into administration or be bankrupted.
Unfortunately, one of the things driving central bank optimism over the likely impact of interest rate rises is that we have not experienced widespread unemployment… yet. But this points to one of humanity’s fundamental evolutionary flaws – we cannot process time. Unemployment doesn’t rise immediately after an interest rate rise, but only after a long process of adjustment which may involve businesses seeking to absorb additional costs and/or pass them on to consumers, cutting workers’ hours, and even converting previous employment into self-employment. There is also the confounding impact of fixed-interest loans, which mean that it is only when a loan comes up for renewal after two or three years – as is also common with mortgages – that the full impact of rate rises has to be managed… one reason why it was foolish of the central banks to raise rates as quickly as they have done.
There are though, even less likely – but arguably more grounded – places to look to find the earliest signs of an impending crisis. My own example of this was on the evening of 31 December 2007. The large number of additional revellers on New Years Eve in the early years of the century caused pubs in the UK to develop a ticketing system – enforced by hired security – which favoured their regular customers… fair enough. Although it meant that those of us only visiting for the holiday struggled to find a pub that wasn’t overcrowded or guarded by bouncers. On 31 December 2007, it all changed. The pubs were almost empty, and on more than one occasion the bouncers happily steered us into the pub.
To put this into economic terms, going out on New Year’s Eve is a very discretionary activity. And so, large numbers of pubs and restaurants having to turn people away due to overcrowding is a pretty sure sign of a booming economy – people have more than enough disposable cash. By the end of 2007 though, after two years of rising energy prices, and the knock-on impact on general prices, together with a series of interest rate rises, the disposable cash had dried up. And yet the official data at the time pointed to a still thriving economy. People hadn’t stopped spending; they had merely adapted – spending more on essentials and less on discretionary items. And then, as now, unemployment was nowhere to be seen. But just nine months later, we were in the grip of a banking collapse which threatened to crash the entire global economy.
Nor is spending on beer and curry the only real-world indicator of bad times ahead. As early as last summer, workers in US strip clubs began to notice a big fall in spending, with one strip club manager reporting that “customers are handing out more fivers than $20 bills these days.” This prompted some media interest in “the stripper index” as a better predictor of the state of the economy than any model dreamed up by an economist. And, as Wilfred Chan at the Guardian reported in February, stripping is not the only real-world activity immediately sensitive to changes in the economy:
“A more contemporary indicator might be found in online dating apps, which also perform well during downturns. During recessions people stay at home more; they don’t want to pay and go to bars… That appears to be the case again today. In November 2022, Match Group, which owns Tinder and Hinge, reported a 2% increase in paying subscribers across its brands, with a 7% jump for Tinder alone.
“Recently on social media, some people have pointed to other new indicators, like the number of people giving up on their blond-dyed hair, nicknamed ‘recession brunettes.’ Maintaining a high-quality salon dye treatment can cost as much as $200 a month – a tough ask when money’s tight…
“But some indicators could be even more mundane. The economist and software executive Tony Nash tells me he opened the fridge at his shared office this week and realized there was no room to put his tuna fish sandwich. That was a far cry from a few months ago, when the office was nearly as full, but the fridge was luxuriously empty. He had started bringing his own lunches a few months earlier to save money, and if his workmates were now doing the same, he wonders, could the office fridge’s occupancy be a recession indicator?”
At the seedier ends of what is euphemistically referred to as the sex industry, there are growing signs of a big economic downturn ahead. As Lauren Crosby Medlicott at the Metro reported earlier this year:
“With much of the UK in financial turmoil, there is barely an industry that hasn’t been affected by the cost-of-living crisis – and that includes sex workers. That’s why a new grassroots coalition of sex worker-led organisations, Hookers Against Hardship, is raising awareness and demanding change regarding their specific experiences…
“‘The cost-of-living crisis is having a terrible effect on sex workers,’ explains Niki Adams, of the campaign group English Collective of Prostitutes, which recorded a 30% jump last year in the number of callers seeking support for starting sex work…”
In the recession of the early 1980s – long before the internet and mobile phones – prostitution was far more visible on the streets of every city’s red light district. And while street prostitution persists, in the internet age, most prostitution goes on out of sight via websites like Adultwork. As Alexandra Heal and Anna Gross at the Financial Times explained last December:
“Five of the 23 sex workers interviewed say they returned to the sector in 2022 after years away from it and that rising living costs wholly or partly influenced their move. It is widely accepted that most sex workers are women, although male sex work has risen in recent years with the rise of casual selling on platforms such as Grindr and Instagram.
“An FT analysis of all 21,000 UK escort profiles on the prominent site Adultwork.com suggests three times as many people joined this year as in 2019…”
The important point about all of these indicators, from sex work to shampoo, is that they are leading. They point to real things which are changing here and now. In contrast, much of the data used by economists and central bankers are backward-looking, and only pick up the impact of these real-world changes long after the economy has passed a point of no-return.
Perhaps if Andrew Bailey and Huw Pill could be persuaded to pay a visit to their local strip club, or at least drop in at the Bank of England’s admin department to check how many packed lunches are in the office fridge, they might be a little less gung-ho about jacking up interest rates and a little less confident in the – inevitably wrong – predictions being made by the economists.
As you made it to the end…
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