Two articles in the holiday financial press confirmed my suspicion that we are in the middle of a lemming type writers’ block.
The first in the ‘Daily Telegraph’, headed ‘Small companies in confidence crisis’, said that research by office provider Regus showed that three out of four employers, with less than 50 people, had no growth in profits in the last twelve months.
The second, in ‘The Times’, headed ‘Dismal decade looms as Britain pays off its debt, say economists’, predicts ten years of poor growth. The report, by Fathom Financial Consulting, says GDP will rise by 1-2% annually until 2020. I won’t bore you with the reasoning.
But what about economic cycles? History shows that boom follows bust which follows boom and so on. Gordon Brown famously boasted in 2006 that he had eradicated this phenomenon.
My subjective experience is that the present depression started in 2007. Regardless of Government action (or lack of) the system (aka the cycle) was recognising the need for a period of austerity. In 2007 the PCTs had started to cut (quite savagely) in NHS budgets. Credit restrictions were appearing long before David Cameron announced that he had discovered there was, in his misguided words, a crisis. Actually it was the Governor of the Bank of England who told him that the UK economy was on a parallel course to the Greek experience.
Every cycle is different. The Dot Com explosion, born in Silicon Valley, was much more localised and short-term, albeit destabilising. But sure enough austerity followed a period of excess.
Economic cycles were the subject of a book published in 1983 by Robert (Bob) Beckman. ‘The Downwave’ provided a compelling and in-depth analysis of the subject.
Beckman himself was an eccentric New Yorker who settled in the Barbican in London eventually buying the top three floors of one of the Towers. At one time he had a London radio financial show. During the era of Thatcher privatisations, and the herd of individual share ownership, his dog William (an old English sheepdog) selected the share of the day by barking when names were read out. William actually outperformed the market.
I met Beckman in Monte Carlo, where he had decamped with his riches, in 1995. He was chain-smoking. He told me that he had discovered the secret of longevity. He died on 6 December 2007 at the age of 73.
He did understand economic cycles. One chapter of his book was headed ‘The Hemline Indicator’ and was based on the belief that woman’s shirts shorten and lengthen according to the stages of the economic cycle.
Beckman was usually wrong about most things which was why his next eight books all flopped.
He was, however, spot on about economic cycles.
We are, right now, deep in a cycle. No amount of Treasury tinkering will have much effect. It is a deeply psychological process as ‘the system’ deals with excess. We are probably beginning to come out of the worst of the recession.
Nothing David Cameron says will have any influence. No Government action will alter the longer term course. If this had been realised the short term could have been so much more constructive instead of the negative and destructive approach being followed at the moment.
The economists and the financial press, with some honourable exceptions, failed to see the global crisis coming. They will prove just as lame in recognising the progress of the recovery
When they do it will probably be two years into the up cycle.