In tough economic times such as we face today, we invariably tend either towards being optimistic or pessimistic. Perhaps it’s a good way to test what kind person you are: an optimist or a pessimist.
There may be those, much more knowledgeable and intelligent than I, who are optimistic that we will pick up within a few years and the financial and economic storms of 2007-9 will be a mere footnote in the annals of humanity. I am a pessimist. My generation in Japan had it tough when the (property) bubble burst and the banking sector collapsed, and it’s known as the lost decade, where opportunities were rare and meagre, social tensions rose, the gap between the rich and the poor widened, and a generation became depressed, lost and forgotten, and unable to accumulate capital.
We simply have no idea how the economy will fare in the next few months and years. I feel that we are in for long tough lean years ahead. I do not claim to understand economics and I can only talk of impressions. I think there is a real chance that the UK and the US will go through a deflationary spiral. Prices may go down but that’s only good news if you have plenty of money to weather any storm, regardless whether you keep your job, regardless of share prices, regardless if the government falls, and if you don’t own a property laden with debts and mortgages. For most of us and companies, it’s going to be bad.
Over the past few weeks, petrol and food prices have come down a notch but many people are still insecure and frightened. If you know that prices are falling, why spend now, why not wait until it’s cheaper? Why should companies produce more products if they are earning less per item and selling fewer items? Fewer things produced and fewer things bought mean fewer people in work. Why should banks let money if the value of the collateral keeps falling and the amount of bad credit keeps mounting? As it is, many Americans and Britons have too much debt even as jobs are becoming increasingly insecure and the house prices keep falling. Stimulus to boost demand, be it tax cuts, rebates or vouchers, would be insufficient and temporary. Buy, buy, buy, politicans and economists may exhort, but with prospect of job loss, who would comply? Use the credit card or borrow on my house? You must be joking! Should not people be saving instead? Cutting the interest rates down to 0% to make more money available cannot float the economy on its own. Why would you need extra money in credit if there’s no way or intention of spending? We live in a consumer society and a lot of our economies depend on us spending our money for products and services: we stop doing that, a lot of our economic activies will cease.
Above all, I feel sorry for those who are in university now, since there will be fewer job and carrier opportunities when they graduate. All the promises of bright future have now dissipated. It matters not how talented or diligent you are, you will suffer from our silly and irrational exuberance, we pawned your future to have good times that are now definitely over. There will always be those who succeed but there will be many more who will suffer, and grievously so. Even when the economy picks up, there will be younger and equally talented ones who will be offered jobs: having missed the bus and being old, you were born in the wrong year.
I keep hoping I will be proven wrong.