Sunday Thoughts: half-time economic whistle goes, but long term unemployment needs essential investment

Sunday, December 7th, 2008 - sunday thoughts

With bad employment data from both sides of the Atlantic, and similar data eminating from Asia, the economists this week came up with the prediction that “we” (insert a country or continent as appropriate), are about half way through this recession.

That could be taken as good news. Only another half to go; but when exactly did this start? Some economists and retrospective data analysis suggests that the US went into recession in January 2008. I tend to agree with that, as US house prices were diving like lead balloons in Autumn 2007, which tends to suggest at least one quarter of bad economic activity, and it take two to technically have a recession. So if we (taking the US as the “we” in this case) will be out of recession by end 2009 – I tend to agree with that.

However, certain other effects tend to lag the economic effects of a recession. Hence, in conclusion, if “we” United States went into a recession in January 2008, then the worst of the unemployment data has just started. Looking at long term analysis, it tends to suggest that the bad data will keep coming until at least summer 2009.

What do I mean by bad data? Yes, unemployment – real people losing real jobs, adding to that downward pressure. This is creating an almost continual line of “essential” businesses to many front doorsteps, and it seems in the UK has instantly re-engaged and possibly popularised Peter Mandelson – you may not like him, but he is the right pair of safe hands in the right place at the right time.

The question therefore is: what will stop this downwards spiral? In these depths, only government action, and there global governments are taking different steps in the same John Maynard Keynes thought of immediate stimulus and long investment: Barack Obama announced plans for investment this week in roads, schools and renewable energy; Alistair Darling gave away 2.5% on VAT, but upped National Insurance; while the French front loaded government tax credits, and went down their normal route of travel investment. We in Wales got a back-loaded housing investment program – there is only so much they can do in the Bay, but it was as much as they could do.

To me it seems, that the successful economies long term and those that will emerge quickest will be those that emerge changed from this recession: economically, structurally and industry prepared. I hence therefore feel that so far that the US President elect’s administration and the French have got it right – one by changing direction, the other by following long term goals set back in the 1970’s with the introduction of the TGV rail investments. In Wales, we are getting it right thanks to a Westminster decision to install the worlds second largest offshore wind farm – yes, the bay off Llandudno will never look the same, but such is the small sacrifice to be paid for retaining working electric light bulbs and low-carbon expertise.

However, personally to me it presently looks like Darling and Brown are behind the ball from a stimulus view point. The only thing so far guaranteed with their package is cost and debt – there is no long term vision, to create world class competitive UK. What will that mean? I believe it will mean that the UK will remain longer in recession, hence losing more jobs, and going further down. It will emerge – my view at present, some time in early 2010 to mid-2011 as the Olympic effect pulls in. But it won’t emerge changed or prepared for the new low-carbon economy; and it will emerge relatively under educated and highly congested, as the essential transport infra-structure investments won’t have been made; both of which will therefore define a ceiling on the recovery height, and resultantly UK competitiveness.

It is hence no surprise this Sunday that those who are not beating a path to Lord Mandelson’s door to lay claim to essential industry status, have been taking a walk down Fleet Street and on the Jubilee line to Wapping, warning of the flight of intelligence overseas from the UK. Who want’s to stay in an economy that presently provides higher risk to your current job, a longer recession, and higher costs in tax and travel if you stay when it does emerge?

I hence now see a second conclusion of the Brown/Darling package – a Conservative government from 2010. Could this be any better than the present Labour regeme? I don’t know, they don’t seem to have many long term idea’s either. But essentially they just need to keep themselves “clean” while the current incumbents of Downing Street keep relying on one track spending choice to keep their own jobs – which they won’t, and at present they are reducing employment prospects for everyone in UK plc.

Please, Gordon and Alistair – wake up and invest, don’t just spend. If you don’t get voted back in 2010, you could always write a book and bag a million, plus another million on the lecture circuit. The majority in the UK don’t have that fallback, so please make some better choices by them now.

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