The High Street spiral of self-harm

Ann Pettifor reports on the latest grim news from the high street today, and outlines possible solutions to the downturn.

Ann Pettifor is the director of Policy Research in Macroeconomics (PRIME)

High Streets are emptying fast. Yesterday it was Habitat, today it is Thornton’s. And for those that remain, the deflationary offers of June summer sales – or ‘distress selling’, to quote Irving Fisher – serve only as a form of ghastly self-harm. In a desperate attempt to raise income to pay off debts and persuade customers to walk through the door, companies engage in price-cutting.

The aim is to undercut the competition, and increase income. But as prices spiral downwards, and profits fall, the victims become those same ‘self-harmers’.

And this harm is not confined to the High Street. Instead falls in prices lead to wider falls in profits, output and then employment which leads to further losses in confidence, and, finally, hoarding. In other words, today’s bankruptcies and summer sales spread the disease of deflation across the whole of the economy. And yet the government, like a parent unable to understand a grave mental disorder, has plunged instead into a state of denial.

But today’s ONS data confirms the High Street is suffering stress – and it is not confined to just one sector. Real household disposable incomes fell by 0.8 per cent, and consumer spending declined 0.6 per cent, the largest drop since the second quarter of 2009, according to Bloomberg. But then so did business investment which fell 3.2 per cent.

The reason for these falls? Unemployment, which combined with the threat of unemployment and the rise in part-time employment daily destroys economic activity, and with it companies and jobs.

After the trauma of the shock 2007-9 deflation of the inflated asset and debt bubble blown up over two decades by the finance sector, companies and individuals have to generate income for debts that need to be paid down, in the context of tight bank lending and high real rates of interest for SMEs. When these are combined with falls in the numbers of customers walking through the door, the result is bankruptcies and job losses, which, as the income of the unemployed evaporates, lead inexorably to more bankruptcies.

Unemployment’s next victim will be the Treasury. Slowly, but surely, it will cut Treasury tax revenues, and ratchet up welfare payments – leading to a rise in the deficit.

There is only one cure for this debt deflation: employment. And, given the debts of the private sector, there is really only one agency that can stimulate job creation, and get the economy back on track: government – but first it has to emerge from denial.

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