Archive for March, 2009

Recession, Depression, War & More

Tuesday, March 10th, 2009

Having been a child during the last major recession, I have been observing the current one with fascination. There are a lot of points I would like to discuss in detail, but one of the most interesting is related to the recession as it exists in reality and as it exists in people’s minds, the facts versus the talk. I’m very interested in how we can investigate and quantify the media’s effect on the situation.

Long before large numbers of people started to experience the recession in any real way, the media was talking ceaselessly about it. Even before it was a recession, even before it was the credit crunch, the media was discussing rises in the prices of food and oil with ever-increasing frequency.

Energy prices were high enough to be noticed by anyone — even relatively well-off people will have noticed their gas and electricity bills doubling. But I doubt that anyone but the poorest people really noticed the increase in the price of food at grocery stores. And, for the poorest, food selection will have always involved consideration of budget, so the increase in prices will have merely meant another rearrangement of their selection of foods in order to keep down their total spend.

Some prices went up but so many prices had come down in recent years that food was not really an issue for non-homeless people in Western nations. If anything was threatening the food budgets of our relative poor, it was the increased housing and energy costs, because being necessary but inflexible they could squeeze the more flexible grocery budget. However, I’m sure that in very poor countries, increases in the price of rice, for example, were devastating. But not here.

Still, the media talked and talked. Then the credit crunch got started, and the media talked and talked about that, too. Before anything had actually happened, before the man on the street, who could do nothing to stop the collapse of banks, was in any way affected by what was at that point a banker’s problem, the media made us all anxious. I have no doubt that Northern Rock can be blamed on journalists — not just the journalists who reported the story but all the journalists who courted public fascination with economic scare stories.

And now that jobs are being lost, banks have failed, liquid cash is hard to find… well, of course, the media talks and talks. And it has a major effect on people. The cumulative effect is visible just walking around, and of course it’s always there when talking to people. Even people who haven’t lost their jobs, people who are doing fine so far, are filled with anxiety and fear. Even though the recession will likely cause less than five percent of working people to lose their jobs, the threat that you might be one of those losses is pretty frightening. There are huge psychological consequences to the concept of recession.

I reckon the recent killings in Northern Ireland are strongly linked to the recession. The sentiments of conflict in Northern Ireland have been there this last many years, but now they are accompanied by a level of psychological disturbance that presents the right conditions for violent, radical, desperate action. I think crime rates go up in recessions not so much because of actual need, but because of the sense of desperation felt by so many. The general anxiety leads those poorly equipped to deal with stress to commit desperate acts. Dissolution and entropy in larger organs of society leads to the appearance of individual chaos-mongers once constrained but now somehow freed to act.

You can see it in York. People have often remarked that York is posh. Well, I’ve lived here a while and it isn’t. It’s nice to look at, and like any comparably-sized city it has some wealthy people, but on the whole it has a mainly lower-middle- and working-class population. Feel free to disagree, but that’s my take on it. It seems to me that York was probably pretty rough around the edges up to twenty years ago, and I think it’s headed back in that direction. Shops are closing, the city centre is changing, the number of chav outrages, as well as the number of drunks and addicts visible on the streets, seem to be increasing. The people seem uneasier. And there have been more robberies in the last year than I have seen in all my time here.

You could analyse crime and unemployment statistics, but what I’m really interested in is the mood of the place. And I think people’s optimism is low, their anxiety levels are high, and this combination can only cause trouble. It’s the perfect climate for opportunists looking to increase chaos. It’s the ideal mix of conditions for triggering latent psychological disorders. Think about it this way: who is committing the increased thefts, burglaries and robberies we are supposed to see during a recession? The recently laid-off? No, career criminals and the long-term unemployed. Perhaps some people who had temporary or intermittent employment will join criminal ranks, but generally we’re talking about increased activity of already active criminals. So why do they increase their activities? That’s the big question.

One other thing I’ve been noting is how, on the ground level, in the retail sector at least, the economic crisis has revealed something that plagues economic viability here — landlords. Any business seeking to operate in a city centre must turn over vast sums of money in order to pay rent and council rates. For a normal small shop these are as high as £15K a month before any other operating costs are considered.

If you sell clothing at an average of £15 gross profit per item that means 1000 items per month just to keep your premises. So let’s say to pay your staff and other indirect costs you need to sell an average 1500 items a month. So you were making it last year when people were still able to borrow money, when they were still optimistically using credit cards, before the media-encouraged fear had set in, which means people are being careful about how much they spend in case things get really bad. Say you were doing all right a year ago selling 1600 items a month. Well if you lose just 100 sales a month then you can only just pay your staff — that’s just 3.3 sales a day. If you lose 600 you’re out of business — just 20 sales a day and you’re gone. How easy is it to lose 20 sales a day in a recession over the course of a few years?

The age-old plague of property ownership is still with us. Landlords have a monopoly on one of our most important resources and they strangle productivity by demanding huge sums of money for the use of their premises. They add nothing to the economy, taking more than their share and providing no services or employment. They don’t even pay for the upkeep of their own buildings. All of that comes out of the renters’ pockets. They are in league with plannning committees who tirelessly prevent new development unless it is controlled by massive developers who will in turn demand huge rents. This system is insane and is the real (har har) problem faced by small businesses on the ground, much more so than the lack of capital, as most businesses could provide their own capital if they weren’t throwing away their income on rent and rates.