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”
manishta sunnia
RT @leftfootfwd The High Street spiral of self-harm: http://t.co/AXXGVmk by @AnnPettifor
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.
Michael
The High Street spiral of self-harm l Left Foot Forward – http://goo.gl/33m39
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
False Economy
The High Street spiral of self-harm: http://bit.ly/mfBbAc by @AnnPettifor (via @leftfootfwd) #falseeconomy