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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17 Responses to “The High Street spiral of self-harm”

  1. manishta sunnia

    RT @leftfootfwd The High Street spiral of self-harm: http://t.co/AXXGVmk by @AnnPettifor

  2. Mike Thomas

    If you make products or offer services that no-one wants, you go out of business. It is that simple.

    I notice there is no chance of offering an alternative here is there?

    Oh…. more government spending….

    No. What is required is for the country’s productive capacity to find the markets that want their goods and services and sell to them.

    Which is why Britain’s exporters are reporting excellent order books at present. The economy is being re-balanced from consumption at the High Street temple of tat and into selling our goods and services at a competitive price overseas.

    Which will do our economy more good than more waste exhausted from a flabby, unreformed and unproductive public sector.

  3. Michael

    The High Street spiral of self-harm l Left Foot Forward – http://goo.gl/33m39

  4. John

    if you make products that people want but can’t afford then you go out of business – that’s why people gather round the reduced priced food at Tesco like bees round a honey pot at 6pm evey night – half priced ways of keeping your belly full, forget Thorntons – basics first, luxuries second, or not at all -Britain Today

  5. False Economy

    The High Street spiral of self-harm: http://bit.ly/mfBbAc by @AnnPettifor (via @leftfootfwd) #falseeconomy

  6. Daniel Weichman

    The High Street spiral of self-harm: http://bit.ly/mfBbAc by @AnnPettifor (via @leftfootfwd) #falseeconomy

  7. mr. Sensible

    This is another indictment for the Coalition’s economic policy.

  8. Rob Brookes

    >Which is why Britain’s exporters are reporting excellent order books at present. The economy is being re-balanced from consumption at the High Street temple of tat and into selling our goods and services at a competitive price overseas.<
    You mean Bae the countries largest exporter. Selling death by bribery and extortion. We should be ashamed. Well I am, I guess you don't care. We should be making things like wind turbines, improving our homes, developing a sense of concern for the environment and living things, but I guess that's not very high up on the list of the rich, powerful and decadent.
    Rob

  9. Frances Coppola

    RT @falseecon: The High Street spiral of self-harm: http://bit.ly/mfBbAc by @AnnPettifor (via @leftfootfwd) #falseeconomy

  10. Homer Pennington IV

    RT @falseecon: The High Street spiral of self-harm: http://bit.ly/mfBbAc by @AnnPettifor (via @leftfootfwd) #falseeconomy

  11. Daniel Pitt

    The High Street spiral of self-harm: http://bit.ly/mfBbAc by @AnnPettifor

  12. Jo Bates

    The High Street spiral of self-harm: http://bit.ly/mfBbAc by @AnnPettifor (via @leftfootfwd) #falseeconomy

  13. Chris Keegan

    The High Street spiral of self-harm: http://bit.ly/mfBbAc by @AnnPettifor (via @leftfootfwd) #falseeconomy

  14. John

    I think it’s called ”problem, re-action, solution” (see Greece) – Now everything’s up for grabs at low low prices to try and raise the money to solve the problem, caused by the banks, the corruption of the elite, which equalled bad re-action from the people, which equalled a sollution by the banks who are poised to buy cheap ! So it’s ”win – win” for the banks Everythings going, bargain prices, Greek services, railways, privatisation – roll up, grab a bargain. Good people of Greece we salute you

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  17. Gawain Golightly

    Boll*cks. Government cant generate wealth, only the private sector can do that. The public sector is a monkey on the back of business, feeding on it and ultimately the more it grows fat, strangling it.

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