Consciousness of Sheep
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In the days before safety lamps, miners would take small birds down mines because they would succumb to toxic gas before it exploded. Which is where we get the saying “the canary in the mine” to describe warning signs of impending disaster. Not that the introduction of safety lamps from 1816 was necessarily an improvement. The 1835 Report from the Select Committee on Accidents in Mines found that mine owners exploited the additional warning time by sending miners into less safe locations, with hundreds of men and boys dying in the resulting explosions. Forewarned, it turns out, is not always forearmed.
This seems especially true here in the UK, where the political class is shadow boxing enemies abroad (and threatening to involve us in wars that we can no longer win) even as the economic and social fabric of Britain is crumbling before our eyes. And, as with nineteenth century mines, the problem is compounded by the technocracy looking for the wrong warning signs. Consider, for example, that the Bank of England is still targeting monetary inflation which disappeared more than a year ago… and that their version of the safety lamp is a rate of unemployment that will only spike when it is too late to respond.
The official inflation rate – 3.4% since you ask – has nothing to do with an oversupply of money. On the contrary, it is the result of too much taxation – the majority of the increase coming from a food supply chain that is attempting to pass-on the increased costs of employment both from the steep rise in Employers’ National Insurance and the above-inflation increase in the Minimum Wage. But here we find a canary that is beginning to choke. Because the attempt to raise prices backfired. As I warned six months ago, British consumers are tapped-out and can no longer afford price increases even in essentials like food – even after years of shrinkflation and the recent trend to “shitflation.” And so, the result of increased prices is falling sales… people still need to eat; they’re just eating less (no bad thing) and eating cheaper.
For the moment, the price-gouging energy and water companies are too essential to lose customers entirely. However, even the wealthy are thinking twice before leaving the lights on and turning the thermostat up, while those at the bottom increasingly shiver in the dark. But even these modern-day robber barons fail to make the number one spot in household spending. The biggest hit for most people – the one deliberately left out of the EU-UK official CPI figure – is the ever-increasing cost of housing. It is not just that the higher rate of interest caused a sharp hike in mortgage costs (because of the UK’s short-term mortgage contracts) but also because, together with tighter government regulation, the additional cost to landlords caused a shortage of rental property and a big rise in rents. This is another reason why the official rate of inflation is at odds with most people’s experience.
People are also facing big increases in Council Tax (the local tax on property which part-funds local councils and local police forces) with every indication of above inflation increases for years to come. But here we find another choking canary. Failure to pay Council Tax is one of the few debt-related criminal offences. And so, most of us go out of our way to avoid getting into arrears – it is safer to default on energy and water bills, since these can only be recovered through a drawn-out civil court process which favours those who genuinely cannot afford to pay. Discovering, then, that there has been a 300 percent increase in Council Tax arrears in the past decade – with most of the increase happening in the years following lockdown – ought to be ringing alarm bells at the Treasury, and certainly points to a Laffer Curve limit on Council Tax increases.
The High Street response to rising local taxes has been much easier… simply shut up shop and – assuming your business is ongoing – move online. A process that politicians seek to blame on the internet, but which really points to the limits of taxation in an economy which has been declining for decades. But at least businesses can move. Households can only default once they have reined-in every penny of spending elsewhere.
But even as a host of canaries fall gasping to the floor, the Bank of England and the Treasury are focused on the safety lamp of the unemployment rate. So long as “inflation” refuses to fall to the arbitrary two percent, and so long as unemployment is barely rising, they will keep interest rates and taxes at economy-crushing levels. The problem though, is that in an economic downturn high unemployment is the last thing to appear. We have already seen vacancies fall to pre-pandemic levels; “economic inactivity” increase significantly; and – less well documented – hours worked decline… all ways of adapting to a slowing economy short of insolvencies and lay-offs.
For the moment, unemployment is barely creeping up, giving the impression that all is well and that inflation is still the bigger problem. But this puts the UK at odds with the rest of the world, where governments and central banks have been spooked by the steep decline in consumer spending. Even the equally stubborn Federal Reserve has now indicated an interest rate cut for July in response to a rapidly slowing US economy.
But here’s the thing, interest rate cuts don’t work. Because people worried about losing their jobs and businesses at risk of insolvency don’t take loans at any rate of interest. And, as we discovered last time around, when banks can’t or won’t lend, and when businesses and households stop borrowing, the economy crashes. This time though, it will be over-indebted governments which need bailing out. And in the absence of space aliens, it is far from clear who can do this.
As you made it to the end…
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