WHERE DID THE MONEY GO?

I’m not going to attempt to make sense of this question, but rather to ask a series of questions which maybe an enlightened economics professor could answer.

We have all lived through the past 3 months of unprece… - wait, I promised not to use that word again – “never before seen” turmoil, caused by a teeny-weeny virus, which has spread globally like a cancer. The medical crisis is profound, and as of today, official figures state over 5 million cases worldwide, and 334,862 deaths. As a direct result we also have a political crisis, a commercial crisis, an employment crisis, and of course a personal financial crisis.

Economic indicators show that retail sales fell by… actually scratch that – whatever figure I share here will be out of date already, so let me summarise.

• Overall retail sales decline March to May 2020 – a shit ton!
• Food sales decline – about 10% (surprisingly). People are buying less food, even if they are getting fatter.
• Alcohol sales – Growth in retail, counteracting the death of bars and restaurants. Overall alcohol consumption is way down.
• Non food sales – everything from clothes to electronics – down by a shit ton. It’s almost impossible to buy a new webcam or printer, but almost no-one is buying clothes and shoes.

Big ticket items.

• Car sales – forget about it!
• House sales – you’re joking right?
• Holidays and travel - cancelled

All of this is no surprise, as unemployment has grown faster than the boil on my face immediately before prom night! In the USA unemployment claims have grown by over 20m. In the UK, the rate of claimants rocketed by 70% in April alone. And that is taking into account the government supported furlough scheme, where employers can send unneeded staff home, and get 80% of their salaries paid by the government. 6 million UK workers are now covered by the furlough scheme, and many are having the extra 20% of their salary made up by their employers.

HMRC said a total of 6.3m jobs had been temporarily laid off by 800,000 companies, with claims amounting to ￡8bn by 3 May.

Official figures show the UK had a record employment level of 76.4% before the crisis, with more than 33 million people in the labour force. The number of employees was 27.9 million, of whom 23% have now been furloughed.

Whilst a large chunk of the population will now be in severe financial straits, most are relatively secure, and are spending considerably less than before. The money not going through the tills of car dealerships, pubs, restaurants, clothes shops and sports stadiums is simply not moving. These people are getting paid, but not spending, so it’s sitting in their bank accounts, or paying down debt, or maybe being frittered away on Dominos Pizza.

The liquidity injected into the UK economy by government has undoubtedly helped keep many businesses and employees afloat, but not all of that cash is circulating.

My point is this: all the money not being spent in shops, bars and car dealerships, has not disappeared. Those not living on the breadline with secure incomes are sitting on that cash. They may see it as sensible rainy day savings, but because it’s not being spent, it isn’t circulating through the economy, as it usually would. Like blood in a body, money has to circulate to do any good, and everyone it touches is nourished by it.

So am I suggesting those people go on a spending spree just to help the economy? No not exactly. But how about this – why not get involved in some redistribution of wealth by spending locally, hiring local trades to fix your house (when allowed), and spend your holiday cash on helping the homeless (like Bill Boorman’s project)?

We may well find, even when restrictions are lifted, that there was already an oversupply of bars and restaurants, but I suspect there will be a whole raft of new businesses designed specifically for a more socially spaced era. More outdoor activities, and fewer which involve large numbers inside cramped buildings.

I can’t possibly predict with any accuracy what will happen in the coming months, but do expect to see the following:

• Wage stagnation. A surplus of candidates, and scarcity of new jobs will ensure this.
• House values will freeze, and maybe even drop. Those having to sell urgently will accept lower than expected offers just to get a sale.
• Much lower volumes of property transactions.
• Fewer divorces – people just can’t afford to split all their assets.
• Foreign travel will be markedly down, and the tourism industry in the UK will rely on UK visitors.
• University admissions from foreign students will halve.
• Stadium capacities will have to reduce by at least 20%.
• Indoor venues will have to reduce capacities, and increase space for bathroom facilities.

And of course all of these activities will themselves have a profound effect on the circulation of cash in our economy. Life will of course go on, but the circulation of money will lead the way in making those changes.

What significant changes do you expect to see in the coming months?