I THINK WE in the UK have all been a bit perplexed by the hype around first Black Friday and then Cyber Monday. Does consumer activity on two days of the year really make that much of a difference to the world? Do the (apparently disappointing) figures released about activity on those days tell us anything we either need to know or should have known?
In a very well written letter to the Financial Times last week, reader Nick Anderson asked the most important of all questions: what is the obsession with GDP growth?
He wonders, not unrealistically, whether the slowdown in demand might not in fact simply be the result of that demand being sated. We have everything we need and, following his thinking, much of the growth of the past years was generated by demand being brought forward and funded by borrowed money.
I used a similar argument at the beginning of the financial crisis seven years ago when I deployed the biblical analogy of the fat years and the lean years. I wrote at the time that what we had done, in my opinion, was to consume the best part of 20 years of consumption in less than 10 years and that we were therefore surely set to go into a bit of a consumption black hole.
OF COURSE, NOBODY took a blind bit of notice of my thoughts as central banks and governments alike decided that the best way to counter a deflating bubble economy was not to engineer a soft landing but to re-inflate the bubble as quickly as possible. “We must get the banks to lend again!” they chimed.
Although many spoke of the recovery being a marathon and not a sprint, too many investors have felt uncomfortable when the runner wasn’t doing four-minute miles or even 400 metres in under 40 seconds. Marathons don’t sit comfortably in a world of quarterly reporting and daily mark-to-market.
In the wonderful Dr Dolittle books – I’m talking Hugh Lofting’s originals as distilled into the Rex Harrison film and not the sad Eddie Murphy remake – there is the great pushmi–pullyu (pronounced “push-me–pull-you”), an animal with four legs but with a head at each end. It is a great beast to observe when studying recovery expectations.
Do we want demand-driven growth which needs credit to get it started as the earnings are not there, or do we want investment-driven growth which expects business to borrow and then start building up production capacity in the expectation that today’s workers will be tomorrow’s consumers?
What neither of these models encompass, though, is a third variation which asks itself what happens if people simply don’t want that much more?
Consumption generates GDP but it doesn’t, if financed by credit, generate sustainable wealth
I WAS THINKING back to the 1970s when microwave ovens and VHS recorders first appeared. Then came CD players, then DVD players, then laptops, then smartphones – and finally tablets. People who can afford these things already have them, and sooner or later they find the marginal improvement which the latest version of whatever brings simply isn’t worth the money, especially if they don’t really have it.
A senior strategist and one-time CIO told me this week that the phenomenon is best described as the technical CBA effect (pardon the language, but that stands for “can’t be arsed”). Could it really be that consumers are not only getting tired of consuming but that they are even more tired of being bombarded 24/7 with advertising and of being whipped up to go to consume even more?
Could it be that we have reached a point where patenting the recipe for ice cubes and selling the marketing rights for cheese on toast have passed their peak? Are, in other words, the Gucci handkerchief and the Dior shoelace all they are cracked up to be?
I passed through Terminal 5 at Heathrow last Thursday and, with Christmas ahead, I looked at this shopping mall with a sideline in flying and wondered. I very much felt my friend’s CBA effect.
Consumption generates GDP but it doesn’t, if financed by credit, generate sustainable wealth. Having frequently argued that GDP is a poor measure as it does not distinguish between organic growth and debt-financed growth – in other words it does not take account of the value-added element of output – I must say that I like Mr Anderson’s thinking.
In the late 1980s, I found myself visiting clients in Dusseldorf where, in lieu of the usual slap-up dinner, I was taken for beer and skittles at the local. I spent the evening with ordinary people making a fool of myself at the skittle alley but I came to understand that a night in the pub can tell us more about where the economy is going than all the statistics which rain down on us every day in our ivory towers.
Maybe, despite all the explanations as to why Black Friday didn’t “deliver”, the figures are telling us that the age of mindless, debt-fuelled consumption is drawing to an end.
But if Mr Anderson is right, lower GDP does not mean declining wealth.
