It’s great, innit?

The main message from both organisations was directed at governments, which they believe must be prepared to step up their spending now that the private sector has seen the warning signs of recession and stopped investing.

The last time the global economy dealt with a shock, governments played a part in the rescue. That was in the days when leaders such as Gordon Brown could command the attention of his peers in arguing for a comprehensive and costly lifeboat. Then, after the 2008 crash, the job of rebuilding crisis-hit economies was left to central banks. Hence the era of ultra-low interest rates.

The justified fear is that the next crisis will be characterised by governments pleading poverty to justify inaction. Either they will argue they are bereft of the necessary funds or that borrowing is already too high.

Georgieva knows central banks have little firepower left after a decade of providing cheap money, which is why she is right to call on governments to open their wallets now, and not wait until it’s too late

When we have a recession then governments must spend lot,s lots, more. When we don;t have a recession then governments must spend lots, lots, more.

Why not just admit that you’re not doing macroeconomics about the business cycle any more you’re just shouting that there must be more government?

7 thoughts on “It’s great, innit?”

  1. All this mucking about with interest rates and deficit spending is effective at smoothing out the business cycle. It does absolutely nothing to solve structural problems. It has effectively been used the last ten years to mask structural problems, which continue to accumulate. What cannot go on for ever will not, however skilful the central bankers and finance ministers.

  2. Then there’s the suggestion of a £500m rights issue, to “repay some debt, lower the interest costs and allow more investment in new, company-owned hotels”.

    I don’t see why TC would want to own hotels, especially given their precarious balance sheet. Their sheer size means they can already squeeze prices and dictate terms to hotels. There’s very little to gain from ownership.

  3. Pat, since we are merely going where Japan has already gone, perhaps the structural problem is that it is very very hard to have significant growth when so much of the world is at the cutting edge, already producing tons and tons of stuff, and most of the new value-adding tuff needs chuff all capital.

  4. “Why not just admit that you’re not doing macroeconomics about the business cycle any more …”

    But macroeconomics seems to be junk anyway. If as clever a chap as Keynes couldn’t sort it out in a useful way, what hope for his midget successors?

  5. Andrew M,

    It’s also just not what they do. They’re a travel agency. They don’t know how to run hotels. And you need people right up to the top who have a good understanding of the problems. If they don’t, how are they going to hire the right managers (with that effect cascading right down to the waiters).

    You can’t really diversify, except by channeling what you already know. What can you apply from x to y. Like, Apple applied all their experience and skills in user experience to MP3 players and phones. Dyson do vacuums, fans, hand dryers.

    Thomas Cook really don’t have much to add. It was mostly running stores, maybe giving travel advice, putting in reps, and none of that is worth much. The internet replaced all of that. Just let it die. Businesses aren’t built to last forever, and sometimes the best thing to do is to accept managed decline.

    Will Hutton/Guardian types who’ve never run a successful business never get this. I know a business that does bill printing. They spent millions on printers in the late 90s, but they run on mostly old gear, with creaking software. And that’s the right thing to do. There’s no growth in printing paper bills. There’s still money in doing it, but it’s declining.

  6. I’ve been watching WHSmith retreating back into their original captive-customer railway station outlet business (expanding into today’s “stations”, airports), but there’s nothing for Thomas Cook to retreat back into. All I can see is somebody buying the name at the fire sale and selling specialist stuff under the brand.

  7. jgh,

    I think with a lot of things, there’s also still a physical store market, but there aren’t as many slots. Like, we’ve lost Virgin megastore, but HMV are still going. Comet gone, but still Currys. Borders is gone, but we still have Waterstones. There’s still the Tui travel stores after Thomas Cooks go.

    Some of this is immediacy, there’s also a bit of advice, and some people just like shopping physically, even at a higher price.

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