I have had reason to examine my relationship to those contraptions called cars lately. When it initially became evident a new vehicle would have to enter my life (for reasons of age and infirmity) I was thrown into a consumer crisis which took months to resolve. About six to be precise. The process has revealed a number of things to me, the first of which is a badge of shame: it turns out that I care, rather more than I would like, what car I drive. In theory I am not at all concerned with brands and badges, or whether something comes ‘fully-loaded’. All I care about is fuel economy and CO2 emissions. But as I got into it, it did really matter to me that the car was not fundamentally ugly. So now I had to account not only for my parsimonious and green sensibilities, but an aesthetic one as well. Already, what had seemed like the straightforward job of replacing a car had become fraught with difficulty and challenges to one’s sense of self.
I will not bore the blog with all the turns and twists of my mind over the six months, but my investigations into the modern, fuel efficient car, revealed that, for some inexplicable reason, modern car manufacturers are making some bastard ugly vehicles. Or, cars that look the same as another. Or cars that don’t look the same as another, and aren’t too ugly but are dull and so lacking in character that if you drove them for more than five minutes you would fall asleep from boredom. To solve the problem I began to wonder if I could walk and cycle everywhere, but the children often need to be in two different places at the same time, as do I and, without the option of a teletransporter, it was clear a car was more or less a necessity. This was a disappointment. The next was that I couldn’t afford an electric car, which offers a limited daily driving range, but motoring that costs about 1p a mile which is a joyous concept in these straitened days.
I retired one car to a more gentle pace of life in the country with some dear friends, the other sat outside making me feel bad. Her front grilles fell out, I drove over one. Her tyres were nearly bald and went unreplaced due to the diagnosis of a dodgy timing belt and a leaking coolant system. After many years of loyal service, the car was being betrayed. At the end of last month, twisting the knife, the car tax went unrenewed. The scrap dealer was called in. On the first occasion I couldn’t go through with it. After another month she has had to go. They turned up in a car transporter yesterday and she started up with gusto and drove straight on to it with not a bother on her. ‘There is nothing wrong with this car,’ I said grudgingly to the man. He placated me with words about her great age and costs of work and then drove away with the old car and disappeared to wherever it is that elderly cars end their days. I found myself wishing I had kept the chrome gear stick knob that used to be freezing in mid-winter and make a pleasant sound when I clunked my rings on it.
I was also close to tears.
To be continued.
I am no economist, as the state of my bank deficit can testify, nonetheless I have taken some time to try and understand what the hell has gone on with the global economy in the last few years. I lived through the boom and bust of the late 1980s and early 90s and my experience with credit then, gave me a good grounding in how fragile life becomes when we live on a play now, pay tomorrow basis.
On the other hand I still live in a Western capitalist economy, some people live without debt, but they are probably the minority. I learned from the 1980s but I could not entirely mend my ways. I did learn one thing though. Don’t buy a buy now, pay later sofa – that’s just stupid.
And that’s where Friedrich August Hayek comes in. His economic theory can be loosely applied to DFS, MFI and the like. If too many people buy sofas they don’t strictly speaking need, with money they don’t strictly speaking have, we have created a sofa purchasing bubble. The bubble contains too many bums on sofas that will be paid for later, and when easy credit becomes hard to come by, the sofa bubble bursts. Suddenly, the demand for new sofas, or kitchens, or white goods decreases sharply. Companies that manufacture or retail these items make less money and worse might not even be receiving the money for the sofas they sold two years ago. Production slows, jobs are lost; it’s not a pretty sight.
Hayek said that to return to a sustainable model of production, liquidation was inevitable. Liquidation of companies and jobs – that’s the pain of a recession. Sustainable production and the accompanying modest consumption, as a model is not all bad surely? However, in a recession I find I am far more drawn to the Keynsian way of doing things. John Maynard Keynes promoted the idea that government could control the business cycle of boom and bust and that in times such as now the government should spend to stimulate growth. There’s sense in both. The weakness in the Keynsian model is that national government most evidently cannot control the business cyle in a global economy that relies so heavily on the financial sector. The weakness in the Hayekian approach is that he would see us all return to subsistence farming, living hand to mouth whilst the sustainable model of production found its feet.
Given that both these influential economists were knocking about in the 1930s and 40s isn’t it well overdue that we quit with the either or approach, where we put the notionally opposing ideologies in conflict, and try to take the elements that might work in a 21st century context?
Take the state sector in Britain, it is true to say that the public sector payroll swelled under the last Labour government, but the proportion of people employed did not exponentially increase. Employment of workers by the state is unevenly distributed regionally. Putting the same proportion of state sector workers on the dole in areas of low industry and high unemployment is not going to make Hayek’s model kick in, as if by magic. It might work better in the South East, where the spread of private and public sector employment is more equally balanced. On the other hand it might not, and it has not so far. Cutting jobs as George is doing is effectively making the poor poorer and increasing unemployment in places where you are more likely to stay unemployed – which is why Keynes’ growth model is so much more attractive.
Having said that Hayek was right at a fundamental level, which is that false demand for consumer goods will lead to boom and then bust. Equally, Keynes was right about the state spending to stimulate growth either; note no Plan B George Osborne’s announcement about a building programme to enhance rail and road infrastructure – jobs and income to stimulate the economy.
To be bold and try to decide which came first, the chicken or the egg you might conclude that the generation of state income needs people employed in the private sector. I have heard it said that the split for public sector and private sector employment is around 40/60. Apparently it has not changed much in the last half century and was actually the highest it’s ever been, in terms of jobs in the public sector, under Thatcher and not Labour, which is interesting and not much advertised. Therefore despite the private sector apparently driving things we may surmise that the state and the private sectors’ fortunes are now inextricably linked – which probably puts Keynes back in the driving seat. After all, when the banks were deemed too big to fail, who bailed the private sector out – the public purse.
In a sense, the balancing act is to cut carefully and judiciously, not quickly and savagely, and to implement a more finely tuned tax system where the rich, the 1%, are not getting wealthier at the expense of the majority. As President Obama asks ‘Is it right that Warren Buffet’s secretary pays more tax than he does?’ Warren says no, I think Obama says no. Certainly the Occupy movement say no! I am not so naive as to think that slamming the super-rich against the wall and fleecing them through higher taxes is going to generate enough money to reverse the tide, but it is can’t be beyond the wit of man to develop a fairer tax system – the paltry 0.001% levied on bank trades is a joke.
To be fair to the coalition government it appears the Big Society, with its focus on the development of social enterprise at its heart, does aspire to take a combination of Keynsian and Hayekian theory – the state funding new businesses with a heart (not for profit). The problem with this approach is that the cutting of the public sector does not immediately covert into quantities of social entrepreneurs kicking their heels. Becoming an entrepreneur, even a social-minded one, takes a particular vision and skillset, an low aversion to risk and a willingness to work every hour of the day – making money available to set these businesses up does not guarantee a supply of people wishing, or able, to start and run them.
The best that could be hoped for is that voluntary sector providers going to the wall due to lack of funding manage to rejig themeselves into a social enterprise model. There’s another problem too. Sustainable business develops at a steady pace, the subsequent impact on unemployment and growing the economy is a very long way down the line and in the meantime the unemployed (former public sector workers included), especially those in regions of high unemployment, cost the state money and generate precisely zilch state dividends. As much as I fulminate against the current regime, there’s no doubt, particularly set against the Eurozone backdrop, we are in a tight spot indeed.
Here’s some food for thought. I was listening to a radio programme at the weekend that contrasted our Chancellor and his career to date with that of his opposite number, Ed Balls; the link is here. It turns out that although Osborne has been an MP for a number of parliamentary terms, his most notable achievement has been his contribution to consistent team failure (Back to Basics, BSE, four election defeats for his party).
You might well argue that creating the largest deficit in history is nothing to be proud of either (Balls), but Labour’s subsequent management of the crisis did indeed seem to be shepherding the UK economy back to some sort of mini recovery until Osborne came along and put the skids under that with his swingeing cuts, incidentally the largest and fastest programme of its kind ever, in the world. As I personally carried on in some degree of debt having learnt my lesson partially in the last millenium, so did the Labour government and every other Western capitalist government, more, or less. What we are not told by the government when we are being given the message that budget and household deficits are bad, is that debt long since became a commodity in itself. That much of the crisis was caused by the slicing and dicing of debt and the selling it on, and on, and on, in various forms for profit. Bad, wrong, mad? It doesn’t really matter now, it is a fact. And to deal with the situation we have to deal with the facts at hand. Putting growth and austerity into head-to-head conflict with each other undermines both approaches – and in the meantime the Eurozone, lead by Germany and France, try to repackage their member states debts to make them more attractive to traders and our own government offers start-up loans to social enterprises willing to develop and sell more financial loan products to new social enterprises…
And that’s kind of what happens with this whole debt-ridden thing: we all start chasing our tails and it needs to look like we’re not because at a corporate or national level this kind of behaviour rattles the markets, stocks and bonds take a tumble and we are back to chasing our panic-stricken tails in ever decreasing circles. Which is a bit how it felt trying to write this.
It’s broke folks, and it needs some fixing. We need some radical responses to effect some real change. I wish I knew where they were coming from. In the absence of that, we probably are stuck with an ideal of cautious austerity with a little bit of growth. It’s like nursing the Selfish Giant’s garden back to life when the children have all gone away. But before we can do that, the Giant needs to drop the Selfish bit…
I went to India a couple of times in the 1990s and I always viewed myself as such to the locals and I made sure to be amply loaded with bits to give children and a daily budget for people begging. I don’t know if that was the right course of action but compared to many people I came across I did have a lot more resources and spreading a little of it around seemed only fair.
The policy worked ok as far as I know, except once in the desert in Rajasthan where I received a very hard pinch on the arm in a crowd of dusty kids – maybe the booty did not meet the required standard…
Anyway it occurred to me today on the High Street that so many businesses are built on the back of business models that involve treating the average consumer as a cash cow, and we let them. We comply, we collude, hell we might even appease. Why? I don’t know really, but I suspect as ignorant consumerism has run riot we are proving the cliche that we know the cost of everything and the value of nothing.
Take insurance companies. Make a claim or don’t make a claim as you will, they will hike up the premium (that they want you to pay by direct debit) and hope you don’t notice or don’t care enough to switch. My dog insurance doubled nearly this year to just under £30 a month. I’d never claimed. I cancelled the policy.
Media companies take the right royal living piss for phones, tv, broadband knowing that we are so barren without 24/7 wall-to-wall entertainment that we will cough up without a murmur. I refuse to have pay tv on this basis alone, it will add little and take much away.
Utility companies have started acting like Coutts bank without any of the benefits. They take people’s hard-earned on monthly basis and then hang on to the substantial excess earning the interest. The direct debit phenomenon is as much as curse as a blessing you know. You don’t have to worry? Yes you do. Taking away the responsibility of paying a bill in a timely fashion in the correct amount is just removing us yet further from actually managing our finances. It doesn’t take long before we are all just out of touch with our own hard cash and we can all see where that collective approach ended up. Surely a service or utility is provided and then the customer pays for it. Not any more. Wake up everybody.