Amazingly, he’s fighting the last war

But, as I have already noted, the assumptions that underpin this are that business and consumers spend, spend, spend from 2022 onwards and there is simply no evidence based on past economic recoveries, where caution persists for a long time after recovery begins, to suggest that this is likely.

His already noted part is a piece which looks at post-2008. That is, not past economic recoveries but the last economic recovery. Which is a pretty thin evidence base really, one time in one place.

Actual economists who opine on such things have pointed out – in fact good ones, like Krugman, were pointing this out in 2008 – that recessions following a Kaboom in the financial system – or accompanied by, or which cause, your taste there – take a long time to recover from. Recessions so unaccompanied do not.

He’s fighting the last war and only the last war, rather than looking at what economics and economist actually have to say. But then this is Snippa, isn’t it?

20 thoughts on “Amazingly, he’s fighting the last war”

  1. Indeed, when the banking sustem goes phut, it’s a job for businesses to have access to working capital.

    This ties in quite nicely with the thread the other day (another RoR one probably) about all money supposedly belonging to the state and yet folk finding alternatives.

    Italian banks are still twitching corpses so a number of businesses have sprung up which bypass the banks and which have created a unit of account for their locality and where businesses are able effectively to match their cash-flow against other businesses. Normal credit procedures are followed prior to admittance to the scheme and there is a monitoring of the account to insure there is sufficient’swing’.

    Blokes in Italy may be able to shed more light.

  2. Not sure about your reasoning, here, Tim. If I’d just scraped through Coronageddon I’d be extremely nervous about spending any money on my business or anything else. Where’s the guarantee the policvnts won’t do it all over again next year? This hasn’t been a natural disaster. This has been a politically caused disaster.

  3. I suspect when we eventually come out the other side of this, people’s belief in the system may have fundamentally changed. Can you see any reason to have confidence in it?

  4. Fair point. It is also fair to say what I have. Which is that it’s a general assumption in macroeconomics – the subject Snippa claims to be the new global expert in – that recessions accompanied by banking collapses take much longer to recover from than recessions not so accompanied. Which is why we rescue banking systems when they collapse.

  5. Bloke in North Dorset

    bis,

    I’m sure you’ve heard it but one of the arguments is that the 1920s boom was a response to the Spanish flu, a sort of huge relief party and we should expect something similar. I think there’s some merit in it it, people aren’t spending much etc and they’ll be glad to go out and consume when its over and that will drive growth.

    The difference that I see is that they’d just had a major war that killed millions of young men and the ‘flu took a whole lot more, so there were plenty of jobs to go round for those wanting them. This time we’ve still got the same number of workers but they’ve also see economic down turn and redundancies. In those circumstances people tend to be more cautious about spending.

    My guess, FWIW, is that we’ll end on the cautious side and see slower growth. Maybe not as slow as after a financial crash but nowhere near as fast as the 1920s because we don’t have that end of war relief that makes people want to party and I think that was the driver not the end of the ‘flu.

  6. I’s why macroeconomics is a thriving branch astrology. Things will behave as they did in the past, except when they don’t.

  7. “Italian banks are still twitching corpses so a number of businesses have sprung up which bypass the banks”

    That’s the Mafia, isn’t it?

  8. Speaking purely anecdotally, those of my clients who have survived this (which is the vast majority) are absolutely gagging to get back to how things were before the lockdowns.*

    * this being an important point. The coronavirus pandemic has NOT caused the looming economic problems, the lockdowns have.

  9. This Time Is Different – Reinhart and Rogoff
    I think the authors looked at close to 800 recessions across time including countries that no longer exist, and divided them into 5 groupings, inflation, currency crash, currency debasement, asset crashes and banking crises. The bank crash grouping were the most severe.
    Ironically they never analysed recessions due to a plague.

  10. @Andrew C
    Speaking purely anecdotally, those of my clients who have survived this (which is the vast majority) are absolutely gagging to get back to how things were before the lockdowns

    Then they’re bloody idiots*. It’s necessary to accept things will not go back to how they were before Coronapanic, work out what the changes will be & adjust. The faster you change, the further in front of the opposition you’ll be. This is is a time of enormous opportunity because change brings opportunity. Yum-yum

    * But then (thankfully) most people are.

  11. @Tim
    Sounds a bit, well, sciencey to me. So, why’s this stuff ‘appenin’ then?

    Well yes Tim. No doubt macro-economists will soon be telling us what happened & why. Then they’ll get pack to predicting what economic growth will be like in 2031 & we can all have a good laugh in ’32

  12. Dennis, CPA to the Gods

    Not sure about your reasoning, here, Tim. If I’d just scraped through Coronageddon I’d be extremely nervous about spending any money on my business or anything else.

    And therein, my boy, lies an opportunity for a risk-taker to step in and invest in the business that might just render your business an afterthought.

  13. Dennis, You Know... The Rational One

    It’s necessary to accept things will not go back to how they were before Coronapanic, work out what the changes will be & adjust. The faster you change, the further in front of the opposition you’ll be. This is is a time of enormous opportunity because change brings opportunity.

    What an odd thing to say after saying this:

    If I’d just scraped through Coronageddon I’d be extremely nervous about spending any money on my business or anything else.

    Make up your mind.

  14. @Bis

    How things were before the lockdown was that my clients were free to chop and change their businesses as they saw fit to best adapt to market conditions. That’s what they’ve been doing for years and that’s what they want to get back to.

  15. Dennis. I didn’t “just scrape through Coronageddon”. Note the “if”. I’ve been exploiting opportunities since day one of lockdown. Done very well out it, thanks.

    And I sincerely hope Andrews clients are agile.

    But the amount of people I’ve heard talking about “when things get back to normal” Like it’ll be the day after we come out of municipal lockdown or whatever. This has gone through our economy here like a rotovator. The leisure industry’s 17% of our economy. We haven’t got much else. Every day I go out there’s another couple of retail premises or restaurants packed up. It’s now started chewing on the businesses service the businesses directly affected. Next it’ll be the ones behind them. All of that took years to build up. When it comes to trying to get this place back on its feet a lot of what will be needed won’t be there any more.

  16. I doubt that leisure businesses will be totally wiped out – the over-60s group are seeing a doubling of mortality rates during the pandemic but ther’s still going to be multi-millions of us left (getting on for a billion worldwide) with lots of money saved up for our pensions with a drop in inflation due to the jump in unemployment.
    Leisure businesses should, and I believe will, slump as the depend on folk spending income surplus to any definition of needs, but there will still be retired civil servants and others with surplus income while hairdressers are starving.

  17. John77
    …OR lots of money saved in pensions which will not be worth as much as they thought and an increase in inflation from all than new printed money?

    People will still want haircuts

  18. @ djc
    Yes, but the unemployed, and some of those still employed but less well-off, will cut down on the frequency and the rents will remain constant until the end of the 7-year lease so …
    After the end of the last lock-down I doubled the tip to the guy who cut my hair (I could say that was because he had more work to do) but that didn’t make up for the income he had lost during lockdown.

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