What makes the current hiatus in consumption unique is that it has been imposed on us, rather than is the accidental result of some financial crisis. We haven’t been able to go to restaurants, shops, bars or to travel. Policymakers are therefore hoping that demand has been merely suspended, or delayed, rather than permanently harmed, and that with the lifting of many restrictions this Saturday, will come surging back, like a dam break, in initially above normal quantities.
Experience in this regard from Germany and certain parts of the US, which are about a month ahead of Britain in terms of easing the lockdown, has so far been mixed. Retail sales in Germany were admittedly 3.8 per cent higher in May than the same month last year, supporting the idea that there is a lot of pent up demand just waiting to be released.
But this was largely down to big gains in online sales. Despite cuts in the rate of VAT, a one-off child allowance bonus worth 300 euros per child, and a doubling of the subsidy on electric vehicles, Germans are on the whole proving reluctant to consume again. They would rather stay in their bubbles.
A recent poll showed that only 14 per cent of those surveyed were interested in visiting shops and just 12 per cent in a major purchase such as a car. The problem is not just continued fear of the virus; it’s also a new worry – that households are en mass about to lose their jobs.
And it may also be that Covid has triggered something that has long been apparent in demographically aged societies such as Japan; citizens have discovered that they don’t actually need to spend as much.
Why buy another pair of shoes when you already have three, or go into the office when you can work from home? Consumption seems as much to be about habit as need.
And that’s where the vicious circle begins. People won’t spend because they are anxious about the future, which forces firms to lay-off more employees, which further damages demand, and so on.
Whatever Rishi Sunak, the Chancellor, comes up with next week to jump start the UK economy by way of VAT cuts, further National Insurance holidays, subsidies for home insulation and electric cars, and the rest, it’s not going to be enough if thrift has become the presiding mentality.
This in turn threatens to upend the established order of the global economy. Big exporting nations such as China and Germany won’t find it so easy if the Americans have given up on their traditional role as consumers of last resort. Less the paradox of thrift, more the curse, or depending on your point of view, blessing of it.