Early this year ( January 29) I wrote about the serious economic problems faced by the United Kingdom, and I noted how difficult it is for individuals, faced with financial problems, to react in what might be seen as a common sense way, and simply stop spending money on inessentials.
My reason for returning to the subject of economic problems now is that they seem to be at least as bad as they were at the beginning of the year. The recent autumn — yes I know it is already winter — statement by the United Kingdom Chancellor of the Exchequer made for gloomy listening. The signs of the problem are everywhere: shops are shutting, to take one obvious example. Exports have been falling, and there is a huge trade deficit.
There are, of course, some less gloomy indicators. Retail sales, for example, have remained quite buoyant during the year. Now, as Christmas approaches, the traditional signs of seasonal expenditure are to be seen — in the shops, and in the advertisements that appear in our newspapers. There are signs too that employment has been growing, though much of it is part-time.
The situation, it seems to me, is one of great paradoxes, and it is a situation that reflects a society which is very different from the society that existed not all that many years ago. It certainly existed in my lifetime.
I make no pretensions to being an economist or a financial expert, but as I look at things as they are now, and things as they were half a century ago, I observe a number of changes in what are accepted as realities.
One of these changes is the technical and practical way in which money is spent. When I began my adult life no one used credit cards. Indeed, they did not exist. (I remember a few years later a visit to the United States, where credit cards had become commonplace, and I had still not got round to using them, having great difficulty in paying a simple bill.) In the pre-credit card era, the normal way of undertaking everyday expenditure was by using funds that one had — paying, for example, by cash or by cheque. Paying by accumulating debts (which is essentially what a credit card makes easily possible) was not the norm. There was a major exception to that, when one bought a house. Borrowing through a mortgage was the usual procedure, though it must be said that mortgage lenders were usually reluctant to lend amounts that greatly exceeded three or four years of annual income.
Few people would argue that credit cards are a bad thing. I certainly would not. They have greatly simplified the way in which everyday transactions are conducted. There is, however, a downside. Because it has become normal to buy things by incurring debt, it has become very much easier for debts to get out of hand. At a time of financial difficulty such as we are facing in the UK (and in the rest of Europe), debts can quite easily come to be seen as not completely real; they are just paper (or rather, card) transactions. I exaggerate, but I believe the basic point that I am making is real.
If one moves from the personal to the national, it seems to me that this reality question can similarly apply. For example, if there is a growing trade deficit, how real, in the long term, is increasing retail expenditure? If that is a valid question, it suggests some grave implications, such as the possibility that growing retail expenditure is a very fragile sign of good economic news.
It is not, I readily concede, as simple as I have been suggesting. There have been huge changes in the past half-century in the ways in which economies are organised. The extent to which economic activities have become much more international is a major indication of this.
There is no doubt that the economic problems faced by the UK and other European countries are real. There are undoubtedly good reasons to be cautious in assessing apparent signs of improvement. It is important to recognise that in the modern world, economies are not isolated, and in attempting to decide whether economic problems are long- or short-term that must be taken into account. With all the caveats, I find it difficult to decide whether I am a qualified optimist or a qualified pessimist. I shall leave the question open.
Bill Kirkman is an Emeritus Fellow
of Wolfson College Cambridge, UK.
bill.kirkman@gmail.com
