Thursday, 22 June 2023

How many legs does a recession have?


Not so long ago, it seemed that members of the UK government were positively gloating as the Eurozone entered recession and the IMF predicted that the UK would not. It was seen as one of those elusive Brexit bonuses. In those far distant times (at least a fortnight ago), a recession was seen as a really bad thing, one to be avoided at all costs. It turns out that, according to one of Hunt’s advisors, recession is a good thing after all, and that Hunt himself supports the idea that the Bank of England should deliberately cause one. Orwell has been replaced by Schrodinger: two legs are now simultaneously both good and bad, and the same goes for four legs. ‘Their’ recession is awful and we’ve been lucky to have dodged a bullet there; ‘our’ recession is a wondrous thing to behold.

In reality, whether the economic performance of an economy meets the definition of a ‘technical’ recession is about as useful a discussion, in terms of the impact on people, as the alleged theological debates of the past about the number of angels that can dance on a pinhead. An economy whose rate of growth over four successive quarters is 0, -.1, 0, -.1 has technically not been in a recession, but another economy which posts figures of -.1, -.1, +.1, +.1 has, since the definition is based on two successive quarters of negative growth. But it’s clear to the most casual of observers that the economy which was ‘technically’ in recession has actually performed rather better than the one which wasn’t. Arguing about whether the definition has been met or not is a diversion from debating and addressing the real impact on real people. Although I suppose that it’s easy to understand why they might want to divert attention.

The most immediate losers from today’s decision by the Bank of England are those who are buying their homes on a mortgage, and that’s where most of the focus has been, with some demanding immediate financial help for those impacted. The concentration of attention on that particular group probably tells us more about the financial position of those in politics and the media than it does about the real-world impact. But that impact goes wider than that: people renting their homes from landlords who have ‘buy-to-let’ mortgages will find the landlord’s increased costs being passed on at some point, and an increase in some rents for that reason will lead to an increase in the ‘market rate’, meaning that all tenants will suffer. Businesses which borrow money for investment (or even just as working capital) will want to pass on their own increased costs of interest as well. As Richard Murphy has pointed out, there are circumstances (like those in which the UK finds itself currently) where interest rate rises are themselves inflationary – the ‘cure’ for inflation is making the disease worse. But, as the saying goes, when the only tool in the box is a hammer, every problem looks like a nail.

The government has rejected any idea of assistance for those suffering the results – if the objective is to cause pain, then mitigating the effect is acting counter to the objective. And that’s the point. Although they don’t put it in so many words, it is now the deliberate objective of both the government and the Bank of England to make most of us poorer. (Not all of us, obviously – multi-millionaires will continue to get richer as economic resources flow in their direction.) It should be surprising that so few realise that making people poorer is deliberate policy, but in a week where it emerged that over 60% of people believe that halving inflation means that prices will either stay the same or fall, it’s a lot less of a surprise. If only we had an opposition party willing to say that it really doesn’t have to be this way; but Labour are committed to agreeing with the basic premises of government policy. Fine words expressing a bit more empathy with the victims of government policy isn’t the same as proposing an alternative.

1 comment:

dafis said...

"....when the only tool in the box is a hammer, every problem looks like a nail." A problem made worse by having Tories in government whose grasp of any hammer is impeded by having their digits already stuck in too many pies ! The problem may look like a nail but most of these clowns couldn't hit it properly anyway. Poor hand eye coordination, defective spatial perception, just plain dumb. Call it what you will.