I was musing today, while writing my editorial for Display Monitor, about the general state of the economy globally and the potential for a ‘double dip’.
It seems to me (and I’m not an economist!), that what we are currently seeing is a problem with the timing of different parts of the economic system.
To oversimplify: The dramatic collapse in banking caused every business around the world to really look hard at its costs and overheads. Companies cut hard and quickly. Unlike the Great Depression, there wasn’t a slow reaction. The global economy and the speed of communication and decision making was impressive. At one level, it was a really impressive example of the execution efficiency of the capitalist system.
Companies cut their costs, but of course, most markets did not disappear overnight. As a result of their leaner operations, profits were not only maintained, but in a lot of cases they were really improved. I commented last year about the dramatic improvement in corporate profits in our newsletter.
However, the layoffs and unemployment and the cuts in government expenditure have now started to work through the system. We talked at the time of the big cuts about the observation from some that while some laid-off workers with substantial redundancy pay-outs retreat into a thrifty mind set, others feel, still, relatively well off and take the chance of having some cash to buy ‘big ticket’ items such as TVs.
However, over time, the bank balances go down, new jobs don’t appear or are hard to find and others see the stresses and strains of the unemployed, so they start to get much more cautious.
I think that’s what we are now seeing – a significant breakdown in consumer demand, especially for products in the segments that we track – TVs and computers. That is going to lead to weaker profits for companies, which is bad news all around, as it will mean less investment and less revenues for governments.
So, somehow, demand really needs some stimulation. However, I was also impressed this week by an article in the FT about ‘Zombie consumers‘. The author blames the timidity of the Japanese government in facing up to the tough changes that needed to be made to deal with the big bubble burst of the 90s for that countries depressing economic situation in recent years. I think there is a lot of merit in that argument.
However, I also tend towards what I think (as a non-economist) is a Keynesian point of view that sometimes demand stimulation is ‘a good thing’.
Anyway, just musings, with ‘no particular conclusion’ (was that what Alistair Cooke used to say? I didn’t think I’d ever forget!). Or perhaps as John Ebdon (another fine radio journalist that has left us) used to say, “If you have been, thanks for listening.” (I was sure this was Rene Cutforth, until I checked on the BBC website – they don’t make them like that any more!).