Spending our way out of the downturn

by Michael Smith

For years and years, especially as regards to the environment and such, we have now been told to get away from being too much of a consumer and consumption society and now, with an economic crises at hand, for it no longer just looming, folks – it has well and truly arrived, we are encouraged by various government measures to go out and spend, spend, spend. Doh?

I personally cannot see how this spend, spend, spend, thing is, supposed, to help the economy and I also cannot see people doing it. What I can see people doing is in fact to hold on to their money in the hope that things are going to get cheaper still., and things will in the end. We are headed, in Britain at least, rapidly for deflation and this means that things will get cheaper and cheaper and people, and that is human nature, are NOT going to buy something now, this very moment when, more than likely, the same product if 20% cheaper by next week or so.

The British Chancellor of the Exchequer, the Secretary of State for Finance, Alistair Darling, has decided that is exactly what they are trying to do, namely to get the public to go out and spend and spend. With this in mind he has reduced the VAT, the sales tax, by 2.5% from 17.5% to 15%, something which has caused nothing bu extra work and cost for retailers who had to adjust all their tills and all their prices. What he should have done instead, if he thinks that lower taxes will make people go out and spend their way out of a recession – not that that is going to work – is to lower the income tax, especially for the lower earners. But he did not do that.

Other governments in the developed world are implementing or are considering similar fiscal measures. The problem is that, so I see it, this is going to do absolutely nothing; nothing whatsoever, and we will be in a recession and deflationary depression faster than we can imagine by going down this route.

OK, I admit, I am no financial whizkid now expert or analyst but I can sure see the writing on the wall and I can see what people are going to do. They are going to say “thanks, Chancellor” and the money will stay in their accounts or pockets.

In times as uncertain as these no one in their right mind is going to go on a spending spree to help the general economy; they are going to tighten their purse strings for the “just in case”.

We are also currently in the, what could be called, “austerity chique” in which even the better off and those with a job are digging up their gardens, or quite a sizable chunk of it, in order to plant and grow vegetables for themselves and their families. Some do it for reasons of wanting some more organic vegetables and also wanting to know where the food actually comes from and what is it it, and others also may do it because it is at present the in thing to do.

This thing of “spend, spend, spend” is morally irresponsible and unsustainable as most of the people of this country and, I guess the same is also true in other countries, and the country itself are deep in debt, to banks and credit card companies. However, we do not seem to learn the moral lesson from this and the government is trying to simply get people to spend more and more. This is simply not sustainable and sustainability is not just something that we must look at as far as the environment is concerned. Our entire life must be, once again, sustainable but it is not – presently – and the government, as said, is not helping here by encouraging spending in order to, hopefully, revitalize the economy. Revitalize it in what way, that must be the question. For corporate greed to be able to continue as is?

The truth is, as said before, that the common punter is not going to go out and spend any money that they may b e “handed” by the government. The current huge amount of government borrowing by the British government as much as others, though the British seem to be one of those that really think that they can get out of problems by borrowing such humongous sums, is not sustainable and means that the public will be hit by tax hikes in the not so distant future. In view of the fact that such borrowings, as said, means more taxes to pay for this later, people are not going to go out onto the High Street and spend all this money that they are receiving by cuts in VAT and such. They are going to keep some of it if not indeed most of it back for the “in case”.

A “spend, spend, spend” approach that we are being encouraged to take up is a non-sustainable way to go and it much be discouraged rather than encouraged.

Are the government of this country, and others, really thinking that we can buy ourselves out of an economic downturn?

Apparently yes. Cloud Cuckoo Land comes to mind, does it not.

Instead of telling the people to take steps and protect themselves in this economic downturn and to make provisions they think that if people will go out with a little extra money and spend that in High Street shops and the department stores of this country. It is NOT going to make any difference and people are not going to go out and spend, spend, spend.

We are seeing already that they are not going to that. Instead they are holding back, though sales have not completely gone down the drain as yet on the High Street, but then it is the Christmas period and also stores are having pre-Christmas sales to lure the punters in.

People are going, and that is becoming slowly obvious, to hold back in general with spending, waiting for prices to fall further. This means that we are headed towards deflation in due course and instead of the economy picking up it will be doing the opposite. And as soon as this is going to become evident to people they will hold back even more when it comes to spending on the non-essentials.

Talks about prices going down does not seem to be working, as yet, at least not as far as food stuffs is concerned. Here prices seem to be still on the up in most places if not indeed all.

Oil prices, on the other hand, do seem to be falling, and not just in the global wholesale market. Even at the pumps we are seeing prices coming down. Whether that will also be seen as price reductions to the home energy consumer, as regards electricity and gas remains to be seen. The problem simply is that the energy companies are way too greedy, even those that claim to have ethics.

But whatever, we cannot spend ourselves out of an economic downturn that is about 2 seconds away from a recession and not all that far from a depression even. It is just the same madness as the way we have dealt with the natural resources. We have spent, spent, spent until now everything is polluted and nigh on gone.

There is only one way out; on both counts: Cutting back and living a simpler life. Period.

© M Smith (Veshengro), December 2008