Creative economics, recession and improvisation

I’ve been reading economics blogs. You have to wade through quite a lot of specialist vocabulary (the QE2 is not a ship) and assumptions made by people who do statistical modelling for a living. But they make interesting reading. So part of what I want to write about today is the state of the economy, and part of it is about how that’s going to affect me, and other people (probably much like you) who live pretty ordinary lives and are just trying to make ends meet.

First point: the origins of the recession were a little more complicated than the bankers playing roulette with our money on subprime markets. They were certainly doing that, but the total losses from the subprime crisis, as J Bradford DeLong points out, were about $400 billion. A lot of money, yes: but the US Treasury was prepared to spend $700 billion to shore up or take over failing banks, the burst of the dot com bubble in the 1990s led to around four times this amount of loss from the subprime fiasco, and in terms of world stock markets, $400 billion is an amount that can be lost or recouped in a matter of days as investor confidence moves.

So the problems ran deeper, and DeLong suggests that part of the problem was the lack of confidence in the banking sector that grew when it became apparent that some banks were going to fail and governments wouldn’t bail them out (though they did in fact bail out quite a few as we know); the lack of liquidity as banks themselves curtailed loans; the problems governments then faced in their own financing (financing debts, increased welfare expenditure, decreased tax revenues) and all this against a background in Europe of governments working on the basis of debts amounting to very sizeable proportions of their countries’ gross domestic product. End result: recession, and governments having to introduce austerity measures.

Oh, and now we have the prospect of recovery being compromised by arguments about exchange rates, principally between the dollar and the yuan, which will impact the balance of trade and how cheap or expensive imports and exports will be.

As a side note, other useful blogs on the general economic scene include Susan Estrich at the Washington Examiner and Stephanie Flanders’ Stephanomics blog at the BBC.

Second point: this is going to leave a lot of people paying more for mortgages or rent (fortunately I’m exempt as I only live in my own imagination!) and ultimately paying more for food, travel and other daily necessities because the financial structures that underpin growing food and getting it to supermarkets, for example, will push some people out of business and add extra costs to the others.

It could get bad. I’ve seen it in developing countries, because I’m middle-aged and I’ve travelled a fair bit over quite a few years. Companies and even municipal authorities being unable to meet their salary bills and leaving people unpaid for months. Increasing levels of corruption. Supermarkets being mobbed because for the first time in a week they actually have supplies in. A currency that is effectively denominated in ounces, quarters, teenths and wraps.

I doubt it will get that bad here, though it will feel austere and a lot of people will start doing work on the side. I can remember meeting some academics from a developing country quite a few years back. Their salaries were devalued by inflation (when they were paid, which was intermittent) and they all ran independent businesses. Some kept chickens. Others traded in part-used car tyres. If you wanted your plumbing fixed, you might go to a professor of linguistics who did that at the weekends. And you might pay him in chickens, or sacks of flour. The professor would still turn up to his lectures and write books, because he had some faith that sooner or later things would come right, and it was what he enjoyed doing. But practical skills, barter, and haggling were all part of everyday life. And we may see elements of this creeping into the UK.

Third point, not limited to creatives but that’s where my thoughts lie. Another WordPress blog, Emergent By Design, recently talked about collaborative consumption, or peer-to-peer exchange. The essence of the post was that the internet is a medium for enabling people to match wants and needs (no doubt there are limiting factors, such as dating websites!), allows people to deal directly without intermediaries (buy your pictures direct from an artist rather than a gallery, etc.), enables people to build communities that may be virtual, real, or anywhere in between (for example Facebook pages for arts venues and events that people actually attend) and can ultimately strengthen social capital for participants who help themselves by helping each other, forging relationship networks that can refer work back and forth through personal recommendation etc.

For creatives particularly, and especially those who’ve been used to working in areas where there has been arts funding and won’t be in the future, it will be an interesting time. The thing is, the economy is ultimately a means for enabling people to live. If it stops being that, they’ll just improvise. I’m not sure, frankly, how things such as writing stories, or making music, films, or paintings will translate into practical and barterable/tradable skills. But one of the things about being creative is that inventiveness and improvisation comes as part of the territory.

Wish us all good luck for the next few years.