What are the epochal economic changes in my lifetime? I'm no student of macroeconomics, as any reader here will know, so I don't have a ready list. The rise of China comes first to mind, along with its concomitant, the (relative) de-industrialisation of the West, and its precursor, the collapse of (left-wing / doctrinal) communism. The oil crises of the 1970s. Economic migration towards the West and the suppression of labour costs. And ... economic "neoliberalism"? The period of the "great moderation"? - maybe. The banking crisis 2007-09? - not really: what changed? Any others people care to nominate? [I'm not looking for lists of new technologies here.]
Anyhow, now we have a serious new candidate: the Keynsian turn of Germany announced just days ago, which is probably just the cornerstone of the EU letting rip, as many in the EC and several member countries have wanted to for decades now. So much latent borrowing power! Assuming it actually happens as presaged, expenditure on weaponry (of course) but also infrastructure, stands to become a truly massive boom, with the added twist that there could be a strong strategic reluctance to outsource all this upsurge in manufacturing and construction to China.
The markets don't think it all looks so obviously great for the USA, either: are we seeing the turning-point in a 25-year bull run on the DJ, and maybe early suggestions of the USD going out of favour? US recession, even, as the tariffs bite? Nice one, Donald - though at least there will be plenty of ongoing demand for his natural gas.
Writing as a non-economist, I'd say that the whole thing also sounds rather inflationary, too - for all of us. The older I get, the gladder I am for my substantial inflation-hedge.
What do we all reckon, at this critical juncture?
ND
PS - did you notice the Irish offered themselves as part of the Macron/Starmer coalition of the willing?! See, this is real !
40 comments:
I've just been amused at the complexity of the knots some of the pro-Trump are getting themselves into over the Trump Slump and his view the Constitution is subservient to the Executive, the tea leaf readings they're doing over how this is really, honestly, some genius, nth dimensional chess move, he's doing reminds me of some the mental gymnastics I engaged in as a teenager to justify dubious behaviours. The pro-Trump Constitutionists are starting to sound like battered wives, yes I'm sure it walked into a cupboard door, and no, I'm sure he won't do it again, more gin and valium?
Europe has been handed a wonderful opportunity to rediscover the joys of relevance, if they take advantage of it, the US is going to find a lot of soft power levers in the bin.
Economically no idea, until the dust settles on the trade war - Trump is now talking about 50% tariffs, and Ontario is on about switching off the power to the US. Runes are hard to read when chaos reigns.
The closing of the gold window by Nixon in 1971, thus ushering in the era a purely fiat global monetary system. And rampant inflation and never ending increases in State spending.
“ my substantial inflation-hedge”
Ahoy, Me Hearties
Have you buried gold lad ?
Sorry to be so dreary, but I don’t think we can get away without adding the UK’s accession to the European Union… and its subsequent leaving of it.
Wherever you stand on the issue, both were fairly seismic events. Even peripheral — yet, intrinsically linked — happenings like ejection from the ERM and accessions of the former eastern block countries (heralding freedom of movement which no-one could have predicted back when we gleefully and unquestionably embraced “the four freedoms” which even Margaret Thatcher welcomed) are vividly woven into our recent (post-war) history and psyches.
The Irish? But surely Ukraine suffers a shortage of hedges from behind which to shoot people in the back?
Still, I suppose they can place car bombs outside Russian pubs.
As for Trump: it is the American custom to blame all and any economic or financial bad news on the sitting President. There are no time lags in economies; there are no other actors: just the current Prez.
I even had to tick an American blogger off for blaming all inflation on President Vegetable. Did he make it worse? I imagine so. Was it all his fault? Don't be daft.
Trump Slump has that wonderful 'memorable advertising slogan' quality, doesn't it? Could have been devised by D.Cummings himself.
Suez? It's a bit too early for my lifetime, admittedly.
How about the switch from GNP to GDP by the US in '91? China adopting it in '93?
It could be the case that de-industrialising post WW2 and pushing all manufacturing Eastwards has been self defeating.
Both America and Europe have had a wake up call with regards to Ukraine. Modern warfare is based on industrial might, so how is America meant to be the premier nation with its industry so severely diminished? Just one shipyard in China has more ship building capacity than the entirety of the US.
I think Trump at least has realised that he needs to reverse the trend and get America building actual products again, instead of importing everything and going into debt to pay for it. If that means a period of rebalancing and uncertainty, then so be it.
There used to be a time in this country when questions used to be asked in Parliament when our trade deficit got too high. Now? Everyone is so used to throwing billions onto the debt pile it scarcely raises an eyebrow now.
We are essentially walking off a cliff. Hence the decrepit state of modern Britain.
@BlokeInBrum - The problem with any rebalancing is how Trump is going about it, via Executive Orders, any future President can reverse them with a pen stroke.
He's adopted a very monarchal approach, which is fine if you can expect to parked on the throne for the foreseeable, otherwise you get in on the statute books - and let any future government wanting to change it, go through a similar battle you did to get it on there.
Post-Trump, you can bet there is going to be a concerted effort to reign in the power of the Executive.
@ND - And given how notoriously thin skinned he is, that becoming a headline, meme, or just part of his Presidency's zeitgeist, will doubtlessly result in some spectacular tantrums.
Maybe he and Gordon Brown can start a new phone tossing compo?
"He's adopted a very monarchal approach"
The Holy Constitution essentially defines the Prez as an elected monarch. (Interestingly, accorded far greater powers than were held by George III, the "tyrant" they replaced.)
@dearieme - yup, but the various organs of the state are meant to limit that power, it was never envisaged they'd either become compliant, or a leader would be so contemptuous towards those that were not.
The Republicans may end up reaping the whirlwind from this, as chances are it'll be the Democrats with the remit to change things, and I imagine it'll be a rare old time for score settling.
I made a rather appropriate typo too.
you did indeed - I enjoyed it!
the Trumpians have no intention of losing the next US prez election, they've made that clear. Given the means they are clearly willing to deploy, they envisage a Putin-style, Xi-style engineered result
... presumably with a dry-run at the mid-terms, which will be 'very interesting'
The mid terms ought to be fun, if they do engineer a result, things will go sour quickly. A few centrists I know over there are starting to sound like radicals, how long before we get a Kent State?
OT - but the EU look to have figured out where to get capital from, people's savings!
That's not OT, CH, that's highly germane to the post.
Nobody should ever forget Consols ...
Trump has been under the shadow of lawfare from the Democrats ever since he ran in 2016. It's they who are reaping the whirlwind from their actions.
A lot of maga Republicans are now of the mind that tit for tat (through the show of raw power) is what it will take to reign the Democrats in.
Ultimately though, it will need Congress to cement into law any long term changes. However the momentum is with Trump, and the old boomer Rinos can tell which way the wind is blowing for now. See how quickly Graham dropped his best buddy Zelensky when things kicked off in the Whitehouse.
I would also contend that Trump himself has pretty thick skin considering the sheer amount that he has had to go through to get to this point.
As Winston himself said, “If you're going through hell, keep going.”
Hmm. Depends on what Caesar and your good self are referring to, but it does sound like it could be another outing of that hoary old chestnut, the loanable funds fallacy (for the uninitiated, consider yourselves lucky, but this is where banks are supposed to only be able to create credit based on what they have in customer deposits; having worked in banking, this is complete nonsense) or its kissing cousin in sovereign debt and government fiscal headroom “taxes fund spending”.
Both are equally inane.
@Clive - the EU have come up with the concept of a Savings and Investment Union (see: https://abreuadvogados.com/en/blogs/the-european-savings-and-investment-union-is-going-ahead/) - sounds rather like the plan is to plunder cash deposits in exchange for investment notes.
Not a totally bad idea, given the state of things.
Prediction - The US will succeed in turning things around and Trumpism will continue for two more terms under Vance. The UK on the other hand is truly fucked.
"We are essentially walking off a cliff. Hence the decrepit state of modern Britain."
There's also the little matter of "import the Third World, become the Third World". Already we are seeing councils who haven't got the cash to do their jobs.
I do wonder if the vast increase in diagnosed mental illnesses might have some relationship to the dispossession of the natives and the destruction of their previous way of life - is a Port Talbot or Barnsley council estate that far from a native American reservation, renowned for their social pathologies?
Nowhere in that link does it say anything of the sort (“plunder cash deposits…”).
And the EU has been talking about a banking union or capital markets union for decades. Wake me up when it happens.
You mean like the "Putin-style, Xi-style engineered result" of 2020? Amazing where all those Biden votes went, and amazing where they came from, too.
"things will go sour quickly"
Things have been sour on both sides of the Atlantic for a long time now. How do two assassination attempts sound?
At least it's a backhanded compliment to both Trump and Putin that some people want them killed. It means they have agency.
No one ever thought that Biden controlled US foreign policy, for example, so why would anyone want to shoot him?
There's no doubt that the streets of Casablanca or Marrakesh are a damn sight safer than the streets of Birmingham or London.
@Clive - it doesn't say it explicitly, no, but when someone says "look at all that money in Pot A, and look how little is in Pot B" *and* provides a rationale for shifting it across (better interest rates) it doesn't take Mystic Meg to predict what they'd like to do.
Perhaps I'm reading too much between the lines, but with them wanting more investment, I wouldn't be too shocked to see some commercial investments offered to banks at decent rates of interest (carrot) married to a requirement to invest in EZ investments (stick.)
Surely the epochal change in my lifetime is that we've gone from a nation that made pretty much everything it used (food, then as now, was what we couldn't produce sufficiently) to a nation that makes less and less.
At least two generations have grown up accustomed to thinking that TVs and electronic stuff, clothes, shoes, even cars and bikes, comes off a container ship.
Oh yes, that I think is very credible — a requirement for banks to hold (ah-hem) “assets” in favoured, pet vehicles (the “recovery fund” sic. (sick as a parrot) or the “defence fund” for example) of the Commission in order to be deemed “well capitalised” by the “independent” ECB.
It’s a mixture of good and bad, like everything, but I’m more convinced with each big geopolitical even that passes we’re better off out of it, thanks to Brexit.
That was me @ 8:42, as if anyone needed any confirmation, replying to Caesar.
Sorry, that’s nuts. I’m absolutely ancient but our last British made TV growing up was a wood-veneered thing with four (count ‘em) big, clunky “tuning buttons”. We replaced that in 1980 with a German-made Grundig, then a secession of Japanese-made ones until some Chinese tat arrived a few years ago. Our last “British” car we had was a Metro in 1981, I think. Awful thing, even then I remember dad saying he should have got German or Japanese one instead.
I never did have a domestically-made Walkman, electronic calculator, mobile phone or similar. Last British-made shoes were when I was seven in 1978.
Saying that you could return to the world as it was forty years ago is like someone in 1945 wanting to go back to 1905. Nah gonna happen. And nor should it.
Adding, a very interesting paper, for those interested, in why Britain hasn’t been self-sufficient in food since the 1750’s (it is intrinsically linked to industrialisation and how you can pretty much always be self-sufficient in food production, it merely depends on what prosperity you are prepared to sacrifice to achieve this) https://www.agr.kyushu-u.ac.jp/foodsci/4_paper_Colman.pdf
(from Kyushu university, the Japanese have long since strived for food security, especially since mass starvation at the end of the war, but this has never been realised and considerable moral hazard created in trying, such as corruption and distortion in public life and politics through favouring rural areas)
And the dire performance of the UK stock market is in no way linked to forcing pension funds to hold safe assets (Gilts LOL) so the government can continue to piss away money it doesn't have.
@Clive: We used to make TVs in the UK as recently as the early 00s , when Sony still had TV manufacturing plants in Wales (there may have been others elsewhere). The Sony plants closed in 2005. Just because you didn't buy a British made TV from 1980 onwards doesn't mean they weren't made here until quite recently (to me at least, 2005 seems like yesterday).
Similarly while you may not have bought a British made shoe since 1978, Clarks continued shoe manufacture in Somerset until 2005, oddly enough.
That’s a different argument — “could be able to buy” is not at all the same thing as “what most people do buy”. There are lots of niche, artisan, bespoke products which are made in the UK but this is a long way from saying that’s where the market and production is or ever was concentrated.
My parents, when they got married in 1966, had as their first car a Fiat 500. It was of course imported. Even back then, British cars were too expensive to satisfy the very lowest entry point in the business. The Mini, which was of course supposed to satisfy the budget end was over-engineered rather than value-engineered (a mistake which continues in British business to this day) and more than they could afford. If you chose to buy your TV rather than rent, in the 1960’s, you’d likely pick from the Japanese imports which were fast gaining a reputation for quality, reliability and keen pricing. If not, then it might be (at the high end) Dutch as Philips was starting to master volume production of what the British still did on largely a craft basis.
So, it’s entirely feasible for someone born in 1950 (!) to never have owned a British-built car nor bought a British-made TV (let alone consumer goods which emerged in the 1970’s and 80’s which were never made in Britain at all, right from their introduction) and not be thought entirely out-the-ordinary or noteworthy.
As for apparel, what were the cotton harvests like in the 1960’s? Non existent. Just as they are today. Textiles were the original globalisation success story and finished cloth become a big import even in the interwar period (British textile manufacturing peaked in 1912, apparently
https://www.theglobalcircle.com/what-happened-to-the-british-textile-industry/)
When, then, were these halcyon days of self-sufficiency or unthreatened manufacturing dominance you are referring to? Did they, indeed, ever exist at all?
ND asked for our views on epochal change, not on whether it was good or not. Obviously we are better off with Longbridge and Linwood as housing estates ....
I don't believe Russia is any kind of threat to us, and we should never have joined the US in destabilising the former Soviet states. But if I'm wrong, you'll find out the importance of a strong manufacturing sector when the lights start going out. Wind turbines and solar panels, even ones made in China, have to be among the most vulnerable bits of power generation technology.
I've never understood the attitude that says we don't need to make anything and can all become wealthy by cutting each others hair and selling each other increasingly expensive houses. Yet that seems to be the UK's economic policy these days.
As always, I’m intrigued and eager to hear what is proposed by way of industrial policy (and a government policy response is indeed required to make effective changes to how business and commerce function to implement the kinds of economic realignment you are agitating for) whereby the country can produce, say, electric kettles (the subject of recent Guardian lamentation, hence me using it as an example) to compete with those imported products which I can find at, for instance, Asda for £8 https://groceries.asda.com/product/kettles-coffee-makers/george-home-white-kettle-1-7-l/1000288354842??utm_source=organic&utm_medium=shopping&utm_campaign=ghs&srsltid=AfmBOoqs2ipb1JosRv4BNLpsWOA8N6fzXZwc4UKM2cqGpZ9Kzc5annRAY3U&gQT=1
If you are not, however, intending domestic production to compete at all levels of the market (you don’t want to try to out-compete at the entry level end) what price segment do you believe domestic kettle production should be aimed at? And, given there will always be lower priced imports, which typically represent the mass market, with high cost / high margin alternatives being inevitably a niche, do you then further propose Trump-style tariffs or other import barriers to protect the (new) domestic producers?
I am all ears.
"I’m intrigued and eager to hear what is proposed by way of industrial policy"
Simple: low taxes, cheap energy, and no imports produced in manners not allowed in the UK. Whether that means keeping existing UK regulations and therefore higher prices to the consumer, or reduced UK regulations and therefore cheaper prices to the consumer is up to the politicians, and in turn the voters.
What should not be allowed is the hypocrisy of voters voting for greater regulation of UK production, while benefiting from cheap imports from places that have a fraction or zero of the UK's regulatory standards. If you can't throw the waste from your TV factory into the nearest river in the UK, then we shouldn't import TVs from somewhere that allows that.
You are aware, I’m sure, none of that is going to happen.
Low taxes? Great, I’m all for that. But either you increase deficits (with a knock-one effect on the cost of borrowing) or you reduce government spending (I’m happy to look at your list of decreases of existing spending but better be prepared to also show me the party with the political will to face down the interest groups who will oppose this).
The other option is more QE, but how do you intend to prevent inflationary pressures — especially as you are also intent on reducing the amount of goods which can be placed on the market through your import policy which precludes goods with lower environmental protections where they are made?
The other option of reducing our own environmental standards is again fine, but (for example) the TCA with the EU locks us into these, so presumably you’re happy to see tariffs on our exports into the EU (and elsewhere as these are common provisions in FTAs)? Energy is bound up in that too. Sure, we could dig up or import cheap coal to use for powerburn but when those we trade with start complaining of environmental impacts and channel their inner Donald Trump and start imposing “environmental” tariffs, what then? And like the tax cuts (with associated spending cuts) what political movement is going to withstand the pushback from those (often powerful) interests who are negatively impacted by this?
In short, whenever anyone tells us that some of the knottiest, most complex and intractable problems or fraught set of trade-offs which face us is all so “simple”, you can pretty much guarantee they are either clueless or scammers, trying to pull the wool over our eyes for some reason or other they’re not prepared to tell us.
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