Monday, 1 February 2010

A question from a reader. Is this worse than 1979


From commentator Scan. Is where we are now comparable to 1979 and what did Thatcher do (don't mention the miner's, I'm from Wakefield! Ooh err!) and did it take 'til the mid-nineties to get back to a surplus?

OK. One part at a time. Lets leave MRs T out of it for now.


Is this recession worse than the 70's and 80's and early 90's ones? I suspect the answer lies in where you are located and the situation you were in when in it began. If you were at RBS, Corus or Saab then probably not well. At BQ industries, which is a privately owned business reliant on public sector contracts, we slightly increased the workforce over the 2009/10 period. I expect 2010/11 to be tough and 2012 to be possibly ruinous depending on how it goes and who gets in.

Obviously in debt terms and global collapse its a bad one. Banking failures haven't occurred like this since the 30's. But, there isn't the energy crisis that caused fuel rationing in the 70's and the sky rocketing inflation that went with it. There haven't been the great interest rates rises. {In 1980 in the USA the rate went up to 21.5%}. Militant unionism in this country prevented successive governments taking action. Unions held the country in their grip and the above inflation wage demands, fuelled ever higher prices to pay the workers, who demanded more to afford the rising prices.

In this recession its probably true that basic lessons had been learned. Workers and management quickly decided on the best courses of action. Shorter hours, less wages,temporary shut downs and this has probably what has kept the unemployment off the 3 million mark. The £ was quickly allowed to devalue this time 25-30% which is now reportedly paying off as export orders rise. Both the UK and USA could have done without a costly war making everything worse. QE has prevented a depression. Slashing interest rates {but lets not forget we were begging the government to reduce them several months before they did.} And the government lost control of the banks very early. Lowering interest rates that the banks didn't follow and now the huge disparity between lending and borrowing. An unsecured loan is around 12.5%.
A savings rate of 2% is considered generous
. The actual bank bailout and forced mergers has probably been the worst part of the governments actions. Unfortunately also the most expensive. The bill for all this has yet to be paid and the recessions end seems a long way off. The inflation genie poked its ugly head out of the bottle only last month. We shall see if the world has really found a better way of managing bust.

Meantime,can anyone help Scan. Is this recession worse than the 1979? Did this government get it right?
It would be interesting to read your individual global meltdown 08/09 accounts and views on how it was handled and how it was handled in 1979/83/91 bust cycles.

21 comments:

Steven_L said...

This is the first recession of my working life, and even though I've been sheltered from it's effects so far in the pulic sector, it has at times been quite scary.

Your points about inflationary/deflationary pressures and militant unionism vs agreed pay cuts I would agree with. Unfortunately a lot of other people think the main difference is that labour are 'better' than the tories.

I see this as potetially a lot worse for the UK than any post war recession. It's more of a Japan-style mess without the trade surplus and high domestic savings rate.

I also think that UK monetary policy levers have very little effect on inflation anymore in this brave new globalised world.

I'm going to try jump ship from the public sector before the recession catches up with me too.

Anonymous said...

In London, to a casual observer, the recession is difficult to spot. In the early 90s recession, restaurants emptied and were boarded up; this time round, restaurants are still packed. Lots of jobs on offer in financial IT too.

El-Kevo said...

The gear knobs on those Choppers could be painful and my flairs kept getting caught up in the chain. The '70s weren't all they were cracked up to be.

Blue Eyes said...

I have to agree with Anon, London seems to have largely escaped the physical signs of recession. My first recession was 1990/1/2 and I remember that the first question that was ever asked at a social gathering was "how is the recession for you?". I think things have bottomed out more quickly this time but whether that is anything to do with Labour's actions or not is something I cannot quantify. The Thatcher/Major/Clarke reforms have probably made a downturn easier to handle.

Blue Eyes said...

Apologies for hte nonsense final sentence.

CityUnslicker said...

OK, we all have to remember one this. This time the government has mortgaged the future big time to buy us out of recession now. Of course this has worked, in the same way that paying your mortgaged on a credit card stops you losing your home.
Thisi s why though it is such a disaster now. With such high prviate and public debt the UK is doomed to anemic growth for the next decade at least.

Sebastian Weetabix said...

If the recession really had stopped now, I would say it was not worse in its social effects than the early 80s. Probably because the over-manning that was endemic then simply doesn't exist now.

But... my fear is this is only just getting started. I think this will be a double dip recession with an anaemic recovery to 2007 levels in 2015 at best. Which would certainly make it the worst recession of my lifetime, and possibly even my grandparents (born in 1898) too. The scary thing is it doesn't matter who we elect on May 6th, the sh*t is really going to hit the fan in Q3-Q4 when the gilt market collapses & the government can't finance itself anymore.

Weekend Yachtsman said...

It seems to me worse than 1979 (which I lived through and worked through, and which "on the ground" was truly awful).

This is for one reason - in 1979 we had a real determined leader waiting in the wings, who proceeded to do what needed to be done, regardless of screams from the producer interests and the unions, and set us on the path for twenty-ish years of relative prosperity.

Whereas now, we have David Cameron - if we're lucky.

See what I mean?

Anon@9.30 said...

I have contrasting memories.

In 1979,
I was at school, and so was my OH who told me they ran out of money to heat theirs and so she was sent home a number of times.

In 90-92, in Croydon
The bars had no queues on a Friday lunchtime or early evening (only worked there).
Several restaurants closed.
A round of redundancies - the first ever in that organisation - quite shocking at the time.
Some friends lost their jobs, the jobs pages in computer weekly went from 38 to about 8 iirc.
Much discussion about house prices and when they will start to recover.

In 2008-9,in Bristol
The pubs are fairly busy - but that may be the student efect. A number of coffee places have shut.
Several restaurants closed.
A round of redundancies - not the first time.
Some friends lost their jobs, the jobs listings on jobserve have gone from many to v.v. few - but there are jobs in London.
Much discussion about house prices and when they will start to recover.

Better or worse?

That is a hard one.
I certainly have more to lose now and this may be colouring my views.
However, at the moment, it does not feel as grim out there.
This may change if unemployment rises along with taxes.

I know it sounds trite, and will not help at all if you are suffering,
but a base level of existance is relatively much cheaper now than it was 20/30 years ago.
You have further to fall ( no more 3 hols abroad per year, eating out on a whim, good burgundy or whatever )
But are unlikely to actually get hungry/cold (- although sadly some still do).

Scan said...

BQ, thank you very much for this post. I'm most humbled :)

And Thank you to everyone else for posting, it's most interesting to see people's take on things.

I started working in 1997 in the construction industry and so don't really have anything to compare it to. The building industry is always one of the first to be affected my financial highs and lows, and from 2008-2009 I was working on college projects, so when the shit hit the fan I was one of the first to go in Jan 2009 and didn't see anything on the horizon before Christmas (which I've unfortunately been proved right with).

Through need rather than want I set-up on my own in September and the run-up to Christmas is always terrible in the architectural world. Things are starting to move, slowly, from the bottom, up, and what none of us need is a second dip. As Weekend Yachtman said, we don't really have anyone who seems like they're either motivated or capable of being of radical help.

Bill Quango MP said...

Steven L: Agree about the monetary levers. And the Japan style recovery, but not quite the same. Labour right now on Vine saying that they went into the bust with very low borrowing and were uniquely placed to deal the recession and that they have prevented the pain.
To Vine's credit he is pointing out the total debt re bank bailout debt and labour's overspending.
Gordon was very lucky , for an unlucky PM, that the recession prevented labour's over spending being discovered. All hidden in the bailout.

Bill Quango MP said...

Anon+ BE Yes,probably the rates changes where vacant lots still pay rates has helped. Its cheaper to have a tenant in a unit, paying zero rent, than emptying them, and paying the rates yourself. Much fewer boarded up units than I would have expected.
But I walked down Oxford Street only last week. If you look above the open doors there are plenty of 'Shop to Let' signs.

EL Kevo - And Viscount biscuits, C+A Jeans and Spangles were as rubbish as Ask the Family.

CU: Agreed. Its a pretty bleak future that no-one wants to hear about.Certainly not governments.

Sebastian Weetabix: There is a long way and a lot of uncertainty ahead. It took a lot of bold policies to change people's mindsets away from the big union nationalised industries of the 70's.A lot of people never agreed with or wanted them. DC needs a new focus for the country. No idea what he has in mind.

Bill Quango MP said...

Weekend Yachtsman Yes, I see what you mean. The alternative to Dave is just too awful though. 5 more years of you know who.

Anon@9.30. I know what you mean. I worked in Croydon in 1991-93 and it was a ghost town. Some of the things that made it so though are yet to come.
I remember that the litter bin outside my work had been kicked in. One of those old metal and wood ones. Splintered and broken, sort of useable on one side only, but most litter just fell out of it. It was lke that for years and years. Probably HAD already been like that for years. With the mess of the 70's and boom-bust of the 80's. Look outside now and see all the modern street architecture. Plastic fireproof bins, new traffic lights, repainted zebra crossings and so on. Its going to be a long while before the sort of growth {and council tax rises of 100%+ } comes around to repair these things once they are broken. The misery of it. And about your wealth point it is cheaper now, but devaluing currency and an import habit are bad mixes.

Bill Quango MP said...

Scan:
You're welcome.
One of the puzzles to me is why HMG didn't blow money on a referb and housebuilding and land grab bailout.
Brown had pledged to build houses on one of his usual, totally unrealistic, press announcements. It may have been 200,000 homes by 2015 or even a billion by 2150, who can remember?

The schools and college refurbishment fund was in trouble before the recession. As NR was going down there were stories of there being no more cash for colleges and the plan was x million over budget and only 1/3 complete.
Well, why not add to the fund? Keep the constructors, vulnerable self employed/small business in work AND have something to show for it, even if it was only prefabs, computer whiteboards and gleaming new urinals.
Same with housebuilding. Start a new homes scrappage scheme ? {not quite sure what that is myself!} or a VAT free period for double glazing/extension work. Wrap it in 'green energy twaddle' if you must, but the idea is the same as the car scheme was, only to save the jobs of the construction industry instead of motor manufacturers.
The actual VAT cut was such a huge pointless waste. Real Jim Hacker needing something,anything to say to hide yet another piece of bad news. That money could have been targeted much better.

Demetrius said...

I can only repeat my comment on the post below "Cameron Announces Same Policy As Before" referring to Scan's original thoughts. Around ten years ago I was talking to Goodhart and looking around the room mentioned that he and I were probably the only two there who could recall the events of '73 and '74 from the standpoint of people who were involved in it all. The cull of older people at the top that has been going on for some time leaves us with few who remember some of the bad times past.

El-Kevo said...

I remember my Mum coming home from the shops with a couple of bargains. Jeans for little brother and me. £1.50 a pair. We tried them on ...

Little brother's ankles are different heights and there's a huge bulge on the left thigh. Mine have the arse hanging halfway down the leg and one knee is twisted - BOTH pairs are marked on the inside "Irregular" We both look at Mum sullenly as if to say "What the fuck ???" She says...

"But they're BRUTUS !"

Bill Quango MP said...

Brutus jeans.. You lucky man. When I was working {in Croydon no less} in the 90's selling Lee jeans {and brutus 'b's - comfort fit. meant they were for people shaped like Homer Simpson} we had an arrangement whereby Lee Riders {a very popular brand at the time} were stamped irregular, even though they weren't. It was to sell them below RRP without competitors complaining.

This does illustrate a point that Anon@9.30 makes. Those Lee riders were £20. That was £10 cheaper than from a rival. Thats £30 average price for a pair of jeans at 1990 prices.
Before the end of the 90's jeans were selling for around £10-£18 a pair. By 2002 to now its £5-£10 for Primark/Tesco type unbranded or George type china Turkish imports. What a fall in real terms.

The cost of living on consumables is definitely way, way less. Its why our parents bought us such crappy stuff and why they went mad when we ripped the knees. Clothes,food, electronics, toys,furniture. And our parents couldn't get credit. Once the El-Kevs juniors had bounced on the sofa until the badly made sides fell off and the brown/mustard floral cover split there was no DFS, no money down, pay in 3 years to get another one. Rumbelows! can't afford a TV or a magimix? Why not hire one? Hire a TV!

My year 1 + toddler age kids have as many clothes now as I did at 25 - And I was in the business!
There's a whole other post in it. A nostalgia one for the weekend maybe. You can tell us how you got your flares out of the chain and how terribly disappointing a visit to Skate City was.

El-Kevo said...

Bejeesus ! That was a real trip down mammary lane. Is there anywhere you've not worked ???

The truth is that I never had my own Chopper. :-(

I used to ride a ladie's bike with the hugest cowhorn handlebars you've seen in your life.

My flairs got caught in the chain nonetheless. How did I get them out ? Just keep cycling.

El-Kevo said...

I never skated or skateboarded. I hung out with kids that did and they all had missing front teeth.

Nick Drew said...

well on the subject of bad times past (Demetrius) something not yet mentioned is that the air of serious left-wing violence was palpable in the late 70's, both international (Russia invaded Afghanistan: NATO hadn't yet responded with INF and was arguably at its weakest-ever relative position to the Warsaw pact)

and UK: we'd had the Angry Brigade and the IRA through the decade, and there were assorted heavy-duty Trots & union militants - Red Robbo, Scargill (sorry Scan!) et al who had tasted blood, and genuinely planned to bring about The Revolution

I remember specifically thinking in 1979 when Thatcher won, this might be the last Tory govt for quite a while

the industrial unrest came to pass; but I hadn't foreseen the internal collapse of the Labour Party (or NATO's very stern response to Russia - prop R.Reagan 1981)

I got married in 1979 anyway - hope springs eternal ! (that went well, too)

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