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Double-Dip Recession – Yes, and So?

September 22, 2011

Here’s another short thought in the financial crisis.

The International Monetary fund issues another gloomy report stating that a number of leading economies, including those of the UK and the US, are in danger of falling into a double dip recession. Pundits in the media react as though recession is the ultimate misfortune. Why? If we invest in equities, the law in the UK requires the seller to advise the buyer that the value of shares can go down as well as up.

Isn’t recession phobia another of those artificial constructs that politicians, the media and the financial services industry uses to manipulate us in one direction or another? Yes, there is a difference between recession and depression. Nobody wants to see the decline of their country’s economy by 30%, let alone 4% or 5%, which appears to be the current outlook for Greece. And nobody likes to see jobs disappearing or houses repossessed.

But let’s be realistic here. Economies do sometimes contract for a variety of reasons. If the UK economy goes into double dip, and contracts, say, by 1.2% over the next year, this does not exactly equate to drought, plagues of frogs and rivers running with blood. And if the average person’s spending power declines by a few percent over a sustained period, this is not the equivalent of having your home washed away by monsoon floods, or your children dying because you can’t feed them.

Double-dip or not, most Western nations are wealthy, and the majority of their populations are well capable of absorbing a slight decline in their spending power. No nation has a god-given right to economic growth, just as individuals have no reason to expect ever-increasing health, wealth and happiness. Bad things sometimes happen, and on the scale of things, not being able to afford a new car, bigger house or luxury foreign holiday for a while does not compare with what the majority of the population on this planet have to deal with on a regular basis.

I and my business partner ran a companycin the UK through two recessions. We did not go into a terminal decline each time the economy took a downturn. We took the view that if our market for the next year or two stood to decline by 5%, that left the other 95% to chase. We got through the lean times, sometimes with difficulty, but never at the cost of our sanity.

So I encourage our politicians to be brave enough to say that recession is not a cataclysm – it is part of the normal scheme of things, like illness, sadness and the British weather. And if we stop making such a big deal about economic downturn – and that means you, politicians, the media and the financial industry – then maybe reactions arising from fear of the future would be less pronounced, and we would be more inclined to make longer-term decisions which take into account that what goes up can come down.

We Westerners are the privileged ones. Most of us have access to high-quality healthcare. We have material wealth beyond the dreams of our ancestors. Most of us live under the rule of law in democracies – albeit with varing degrees of imperfection. We are able to speak, think and travel freely. It seems to me that the one quality that is on the decline is happiness. If we are to avoid a state of permanent disappointment and thwarted expectations, we – and I speak of the generations that have never experienced war and real deprivation on our doorsteps – need to get used to the fact that there is more to life than an ever-growing salary, a new flat-screen TV and cheap food in the supermarkets.

If we’re lucky enough to have jobs, somewhere to live and a reasonable quality of health, we should count our blessings, and remember that we have what many have not. I know this sounds like a “think of the starving millions” sermon. I also know that in the previous posts I have used a lot of words in blaming the idiot bankers and politicians who contributed to our current plight. So perhaps it’s a bit rich for me now to maintain that recessions are natural phenomena. But look back over centuries, and human folly seems far more part of the natural order of things than the mistakes of our contemporaries.

We may be worried about the future, and with good reason. But there’s only so far you can go with blame, recrimination and fear. Ultimately, I suggest that there are always way to find happiness in small things even in the hard times. We just need to know where to look.

One Comment
  1. Cassandra2011 permalink

    As usual, Steve, you have presented your ideas with great elegance.

    However, this time it’s different. Let’s start by quoting Mr. Cameron in Canada today: “This is not a traditional, cyclical recession, it’s a debt crisis. It is not simply a question of using conventional fiscal and monetary levers to stimulate growth until confidence and normal economic activity returns.”

    In other words, there are no tools left in the toolbox. Printing money (aka quantative easing) will ultimately lead to Zimbabwean-style inflation. Look at Bloomberg, CNBC Squak Box and you will hear a phrase that you haven’t heard before: “systemic failure”.

    The shocks that the Russians experienced after the Soviet Union breakup should give us an idea of what we might be in for. We didn’t “win” the cold war; they just went bust before we did.

    According to “Washington Insider” Lyndon Larouche, it was known during the Clinton administration that the US economy was going to run out of road. He went on to say that other “Washington insiders” considered that something like 9/11 would be needed to prepare the population for the loss of civil liberties that will come after the US economic collapse. Sort of like Weimar/Rise of Hitler all over again.

    An exaggeration? Impossible? “Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.” “I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”

    Maybe it’s time to start thinking the unthinkable..By the way, do you still have any old peseta notes? Hold on to them..they’ll probably be accepted next time you come to Spain.

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