The Not So Great Depression

Even if you do not regularly torture yourself by listening to Bloomberg or the BBC (that purveyor of “news of fresh disaster”) it is I think accepted that the worldwide economy is not exactly buoyant at the moment. I won’t add to the torment by imagining that I can say anything less than trivial about the economic theories which are driving this lapse. What however interests me more is the effect of these events upon people in the street, quite apart from how Wall Street and the global stock exchanges juggle the numbers. In the final analysis what sustains our national coffers and pumps our financial institutions is probably nothing more glamorous than personal income tax and the housing industry (there’s a reason they keep reminding you that the purchase of your home is likely the largest single investment you’ll ever to make). It doesn’t require much imagination to see or predict the infection of the financial markets when people start to lose both their jobs and their houses, a pattern which in the United States at least is considered far from over. It is remarkable that these two pillars of society (jobs and houses) are apparently so easily jostled and toppled. The American experience discloses that the housing industry had become a complete sham, the product of deliberate artifice. Not surprisingly the ramifications were widespread, pointedly tainting even the grandest of institutions at the top which sought to take advantage of the
In times of general austerity, it is common to see a reduction in so-called “discretionary” spending which can include artwork, jewellery, automobiles, furniture, clothing, vacationing, dining out, even estate planning; in short, everything other than the essentials, namely food, shelter and energy. The broad scope of discretionary prohibitions ensures that almost every facet of commercial and professional society is touched. As is so often repeated, “No one is spared!”

One can see the diminishing effect of a stagnant economy on the street. People are less inclined to mill about the commercial centres because they have no purpose in going there. Nonetheless some firms persist in their attempts to capitalize on the current conditions. For example I noted with interest a recent television advertisement by Canadian Tire in which they skillfully contrasted and promoted a tent and folding chair by a campfire to a five star hotel. While there is obviously a demographic to which this appeals, I doubt it will be sufficient to save the economy from otherwise collapsing. I can imagine that there is a threshold beyond which no amount of reduction in price makes anything attractive. The shop keepers must simply wait it out.

An economic downturn first instills caution, then fear and finally paralysis. We all know of the rolling effect of stagnation; it starts first with one sector, which in turn corrupts another and so on. The effort to reverse the trend may also precipitate insular thinking though I believe it is now widely acknowledged that the days of closed borders (“Buy American!”, “British Jobs for the British People!”) are no longer realistic or even beneficial.

Some people imagine that the US economy is losing ground to China. Remember however that agriculture is about 20% of China’s output and that its production consumes about 40% of its labour force to do it. Even if it is anticipated that by 2050 the average household income in China will increase 800% over what it was in the year 2000, it will then still be only one-third of what it is in the United States. In other words, though China has come a long way, it still has a long way to go.

It bothers me to know that the only palpable remedy for the Great Depression was a world war. Though I seriously doubt this will happen, given the animosity which currently exists in Europe (particularly between Germany and Greece, and perhaps soon involving Italy, Spain and Portugal), the possibility of skirmishes between these once cohesive entities is not unthinkable.

The frailty of our economic bulwarks is heightened by the fact that more so than ever our young people are unable to secure employment. If this continues, it is a condition which will rot our social system from the inside out.

My ninety-three year old father regularly observes that “Money doesn’t disappear; it just changes hands”. There is a certain comfort and attraction to this adage in that it has the appearance at least of suggesting that the capital of this world is a constant and that though its employment may alter it will not entirely evaporate. This further suggests that there may indeed be other ways to manipulate and profit by our current trove of capital, that while some of the present machinery is either outdated or redundant, there are nonetheless other ways by which our inventory of resources may be advantageously put to use. In a sense this is perfectly logical, given our understanding and acceptance of where we went wrong in the past. It stands to reason that we must learn from our mistakes even if severe compromises are required. It also provides a glimmer of hope.