Past five years appear to be a dress rehearsal for future: smaller economy, falling living standards, austerity and fed up voters
Since the start of the crisis five years ago, mainstream economics has been waiting for life to return to normal. Whatever ideological differences they might have, Keynesians and monetarists share a faith that all it takes is time and the right policies to bring back the good times. What unites them is the belief that the tough time the world has been going through since the summer of 2007 is an aberration.
But what if it isn’t? What if – in the memorable phrase of Tony Crosland when the wheels came off the economy in the mid-1970s – the party’s over? What if the 25% share of the vote taken by Ukip at last week’s local elections is not just a here today, gone tomorrow protest, but a sign of the political disaffection to come?
Should that prove to be the case, it will necessitate a complete re-think of political economy, since the model of the past 70 years has relied on decent levels of growth providing the resources not just to raise personal consumption levels but also to allow the expansion of welfare provision.
There are three reasons why this might be an over-gloomy assessment. The first is that growth does at last seem to be picking up, even if slowly and unevenly. In the US, the housing market is on the mend and the financial system has been largely patched up. In Britain, demand for mortgages is rising, new car sales are robust and the forward-looking business surveys are looking stronger. Consumers seem to be fed up with being miserable and have started to spend a bit more.
The second reason why the dark clouds may eventually be banished is that this is not the first time people have predicted the end of growth and been proved wrong. You don’t need to go all the way back to Malthus for an example: in the 1970s, there were plenty of doomsters who said the limits to growth had been reached.
The final reason, linked to the second, is that every now and then a burst of technological innovation has come along to revitalise the western industrial model. It happened at the end of the 19th century with a wave of innovations that included the automobile, the aeroplane and the cinema, and there are those who think what’s happening in digital, biotechnology, robotics and energy will perform the same function over the next 10-15 years.
Let’s take these points in turn. It is certainly true that western economies – the eurozone apart – are enjoying some growth. It is also true that the emergency policy actions of late 2008 and early 2009 prevented a severe recession from turning into a rerun of the 1930s. But five years on these emergency measures are still in place. Not just that, they have been augmented over time and are now permanent features of macro-economic policy. We have become hooked on stimulus and this is not a healthy sign.
An alternative history of the past 40 years goes as follows. The growth pessimists were broadly right, but what they did not anticipate is that the west would find new, ingenious and often dangerous ways of keeping the show on the road: financial de-regulation, personal debt, globalisation, exploiting the environment. There are still a few tricks policymakers can turn, such as shale gas and quantitative easing, but essentially these are just new versions of the old tricks. The game is up.
Nor, if the American economist Robert Gordon is right, can we rely on the cavalry to arrive in the form of technological change. Gordon argues that the current wave of innovations will prove less growth rich than those of a century ago.
Stephen King, the chief economist at HSBC, says in his new book, When the Money Runs Out, that we should not take progress for granted and should instead be bracing ourselves for the end of western affluence. He says the stagnation is far from temporary and will reach crisis proportions before too long.
King paints a dystopian vision of the future in which nations recoil from globalisation and become more willing to fight over resources. Populations lose their faith in governments and in money that has been debased by attempts to revive growth.
You don’t need fully to buy into this argument to see that King might be on to something. In Britain, we have a set of economic assumptions: that the economy will expand by 2% or so a year; that rising house prices will provide owner-occupiers with a nest egg; that the nation is wealthy enough to spend more on the steadily increasing cost of health, education, pensions and care for its elderly citizens.
There would need to be a radical scaling back of expectations in the event that the trend rate of growth is no longer 2 to 2.5% a year but 1%. Some of the promises we have made ourselves about the future would look extravagant, even reckless. There would be hard choices to be made between higher taxes and pared-back provision of public services. There would be a struggle to secure the fruits of what little growth there was, which those with the sharpest elbows would win. Many people would be in the position of seeing their living standards drop year after year, and would be mightily unhappy as a result.
In reality, a dress rehearsal for this sort of world has been going on for the past five years. The economy is smaller now than it was in 2008; living standards have fallen sharply; austerity has been imposed and – as the support for Ukip shows – there is a great deal of disgruntlement about.
Received political wisdom is that David Cameron and the Conservatives have the most to lose from the rise of Ukip. That’s true if Nigel Farage is merely surfing a wave of Euroscepticism, but if he’s tapping into a deeper well of disquiet the political leader with the real headache is Ed Miliband.
Why? Because social democratic parties thrive in times of abundance and wither in times of dearth. A growing economy allows parties of the left to increase investment in public spending and to redistribute resources from rich to poor. When they preside over falling living standards and cuts in social provision, they get kicked out.
Many natural Labour supporters voted for Ukip last Thursday, even though the past three years under the coalition should have made the official opposition the receptacle for protest. Labour should have done much, much better. That it didn’t boils down to two things. The opposition is still blamed for the state of the economy when the crisis broke. More significantly, perhaps, Labour needs to show that the growth pessimists are wrong and that it has a plan for remedying the UK’s deep structural problems after the next election. As yet, it has not remotely done so.
• Stephen King: When the Money Runs Out; Yale University Press
Fri, May 03, 2013 12:00 – Spyglass Resources Corp. (PACEF: OTC Link) – Symbol Change – The symbol, PACEF, is no longer a valid symbol for Spyglass Resources Corp. . As of Fri, May 03, 2013, the new trading symbol is SGLRF. You may find a complete list of symbol changes at otcmarkets.com.
Excerpt from: Spyglass Resources Corp. (PACEF: OTC Link) | Symbol Change
Fri, May 03, 2013 12:00 – GeoGlobal Resources, Inc. (GGLR: OTC Link) – Venue Change – The symbol, GGLR, no longer trades on NYSE Amex. As of Fri, May 03, 2013, GGLR trades on OTC Link. You may find a complete list of venue changes at otcmarkets.com.
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Investors continue to support markets with miners leading the way on hopes of further central bank moves
Investors are not selling in May so far, defying the old stock market adage.
Despite the FTSE 100 recording its eleventh monthly rise in a rose – the best performance since the index began in 1984 – it has added another 24.17 points to 6454.29. Early days yet of course, but the continuing hope of further moves by central banks to stimulate the global economy continue to spur the market on.
Later comes the US Federal Reserve and on Thursday is the monthly update from the European Central Bank, which is widely expected to cut rates. Any disappointments from these meetings are likely to be taken badly. The US non-farm payrolls, an important indicator of the state of the world’s largest economy, are out on Friday.
The mining sector was among the gainers despite China’s manufacturing index slipping from 50.9 in March to 50.6 last month, adding to concerns about economic growth in the region. Most analysts however said the new Chinese government’s plans for infrastructure investment should keep things ticking over.
Chilean mining group Antofagasta added 29p to 926.5p after a 13% rise in first quarter copper production and strong cost control. Mining investors have been concerned about soaring costs but Antofagasta said they were flat in the first three months of the year. Canaccord Genuity said:
Total copper produced in the quarter was 183,800 tonnes ahead of our 177,900 tonnes estimate. Cash costs were a lot better than we had expected with gross cash costs at 172c cents a pound, well below our 187 cents estimate.
Randgold Resources has risen to the top of the leading index, up 175p at £52.35 ahead of an update on Thursday and despite a pay revolt by investors on Monday.
An exception to the sector optimism was controversial Kazakh miner Eurasian Natural Resources Corporation, 7.4p lower at 267p on news of another possible investigation by City regulators.
A number of companies went ex-dividend including insurer Admiral, down 40p at £12.41, Reed Elsevier, 21p lower at 731p and ITV, off 3.4p at 122.5p.
Home Retail, the owner of Argos and Homebase, dipped 0.1p to 155.7p as profits fell for the fifth year to £91m but met analyst forecasts.
Rival Dixons Retail has risen 1.07p to 36.17p after Deutsche Bank raised its price target from 36p to 41p with a buy recommendation. Ahead of an update on 16 May analyst Charlie Muir-Sands said:
We expect sales for the 16 weeks to end April to follow a similar pattern to the third quarter: robust sales growth in markets where Dixons is market leader (mainly UK and northern Europe) offset by ongoing weakness in peripheral divisions. We make no material changes to our forecasts. However, recent (admittedly small) disposals [equanet and Webhallen] increase our conviction that management is serious about restructuring/ disposing of these loss-making businesses.
Acquisition of Human Resources (HR) Technology Consulting Provider Strengthens Laurus Strategies’ Mission to Provide Comprehensive Solutions for All Stages of the Employee Life-Cycle
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VANCOUVER, BRITISH COLUMBIA–(Marketwired – April 26, 2013) - Teck Resources Limited (TSX: TCK.A and TCK.B, NYSE: TCK) announced, in accordance with Toronto Stock Exchange requirements, the voting results from its Annual General Meeting held Wednesday April 24, 2013 in Vancouver, British Columbia.
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The UK’s Serious Fraud Office starts an investigation into Kazakh mining company and FTSE 100 member Eurasian Natural Resources Corporation.
Read more: UK fraud probe for Kazakh miner ENRC