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I'm on my way to Crewe |
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"I'm on my way to Crewe"
Commentary No 392 16th May 2008
The girl who sang those lines was on the wrong train. She wanted to go to Birmingham but found that she was heading for Crewe. “Oh Mr. Porter, whatever shall I do?” Increasingly the Chancellor is sounding like Will Hay in that marvelous classic film “Oh Mr. Porter”.
What the country is dealing with today is a reversal of recent events. During the past 10 years it's been downhill all the way. Ministers appeared to be in charge of events. It was as though some marvelous change had overtaken the British economy. After all those years of fighting inflation, fighting the unions, fighting low productivity we were into the equivalent of the sunny uplands. We appear to have learned how to deal with the trials and tribulations which had wreaked havoc with the preceding decades. Gordon Brown, the man apparently responsible for achieving our new-found record of reliability, of growth of spreading happiness for all, preened himself on his achievements. And frankly, we all tended to agree with him. Tony Blair might have dished himself what with Iraq and all that, but if there was one thing we could rely on it was Gordon, purveyor or this new found growth and stability.
Well, that's all over. We had a good run of it but we’re back in with the old problems. The transition from what we had been getting used to and what we stupidly thought was a new world of unending prosperity, is painful. And we’re now beginning to experience some of the pain.
The big difference between now and then is that events instead of being driven by us, that is the bankers and politicians and the decision-makers, are now driving us. We are no longer in the driving seat. We’re tearing along all right but it is events which are driving us. We are responding to this and that difficulty. And the speed is picking up. It's getting increasingly difficult to avoid the boulders in our way. We are, if you like out-of-control. But that's how it is when the world hits difficulties strewn across our path.
We know we’re in trouble when certain key buzzwords from the 70s suddenly begin circulating again. Stagflation is back. That should strike a chill through the nervous system. What it means quite simply is a nasty combination of inflation without growth. Furthermore the danger is arising from a replay of what happened in 1973. That's when the era of really cheap oil suddenly ended. The producers refused to play. It was Oliver Twist again. They wanted more. And they got more. That's what they're doing today. In a way the only answer is inflation. It was then and it probably is going to be now. The oil price is denominated in dollars. Okay we’re paying $127 a barrel. The only way to square the circle is to pay them in fast depreciating dollars.
But need the whole economy suffer? The circumstances of today are very far from those of 1973.
Take Sainsbury's recently reported results. Justin King when he talked about the results was reluctant to agree with the interviewer that his customers were necessarily going to be suffering really hurtful rises in all food prices. Price of wheat, rice and some dairy products like butter have all shot up. But people can adjust their purchases. They can find more of things the prices of which have not gone up. Meanwhile on the High Street the price of clothing has gone down not up. And the price of houses is beginning to tumble.
Moreover compared with 1973 the world is about half as dependent on oil as it was then. Put it another way to achieve a given level of economic activity we now consume half what we used to in oil products. And the result of this price hike is going to hasten the day when that figure will eventually be down to a quarter. It's the same with the banks. The days of earning those huge profits are over. It's back to normal banking now, the kind we all used to assume was the major source of those profits. Take away what they've actually been doing and those profits are going to be much less. Their per share earnings are going to be particularly hit by the double whammy of having to raise much more capital in order to conduct much less profitable business.
Meanwhile Gordon Brown's Golden rule has gone out of the window. It's going to be followed by a lot of other golden assumptions. We are living through the first painful period of serious readjustment. It's not the end of the world. But it probably is the end of a number of frivolous extravagances. Politically it is the end of pretending that we can walk on water. But this readjustment isn't going to be confined to politicians. It's going to hit the whole financial area. And it is going to end up with all of us adjusting seatbelts. We'll need them for this bumpy ride.
Tony Rudd
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