Eddie Hobbs: We're down, but we're not out

In the shop opposite Scoil Chríost Rí, a pack of Perry’s Crisps cost a silver thruppenny bit, the one with the Irish hare on the back.
Eddie Hobbs: We're down, but we're not out

In the shop opposite Scoil Chríost Rí, a pack of Perry’s Crisps cost a silver thruppenny bit, the one with the Irish hare on the back.

I had those until February 15th 1971. Then it all changed.

In no time, the same packet of crisps set me back two shiny bronze 1p coins which was much more than my old silver hare.

The adults called it decimalisation, but I thought it was a cheap trick.

Later I learned it was inflation. The new silver 5p coin had a bull on the back. I guess someone was being thoughtful.

A few months later US president Richard Nixon broke the gold standard and let loose over a decade of global inflation.

The pint of plain in 1973 sold for 20p, it was selling for £1.37 ten years later. I didn’t know it then, but I do know now that we are near such an extraordinary situation again.

World governments have, by shutting economies, decreed that the supply of goods and services is to shrink but at the same time, jacked up money supply to nosebleed levels.

There are even calls for unlimited pyroclastic clouds of cash out of thin air, whatever it takes.

Cool heads are needed, Covid-19 has changed many things but not the laws of money.

Ask the Germans, Argentinians, Venezuelans and Zimbabweans about setting fire to currencies.

The big question is how can we recover with the least damage?

Somewhere close to €15bn in a range of measures is needed, according to IBEC and ISME.

This is the bill to prevent structural damage, the loss of large numbers of employers. I estimate one in four SMEs will have failed by the end of June.

The sector employs 75% of the private economy workforce outside of Dublin , so do the sums on the number of workers that will be left marooned if the Government errs.

In terms of accelerating the speed of recovery, the stone in the shoe is Sweden, a major member of the EU.

There, medical scientists emboldened by greater ICU resources, quarantined the most vulnerable but let society self-police to allow Covid-19 to run through it.

They gauge that transmission is inevitable, that all you can do is delay it and at a huge cost.

If they are right, Ireland, by continuing to follow WHO protocols, is committing an enormous act of financial self-harm over the months ahead and, Sweden’s economy will rebound far quicker and ship less damage.

Data will eventually reveal the truth. On the economic front we are entering the first stage after the shock.

This is bringing deflation because of demand destruction, so expect some price falls, from property to foreign travel.

Inflation into 2021 is likely to be close to zero as consumers tip-toe back to shopping for discretionary goods.

This is the reflation stage but, thereafter it is hard to see how inflation won’t follow.

This it is not like the global financial crisis, when most of the quantitative easing stayed within the banking system.

For years most consumers were paying down loans with, a near halving of consumer debt in Ireland over a decade.

The downward pressure on global prices we’ve enjoyed for decades is nearing its end. China is in an open-ended row with the USA and you can add supply line shortening, globalisation’s new lipstick.

Put cash creation and supply shock together and it is the classic petri dish for releasing the mischievous inflation genie. So, what happens then?

Trade Unions and workers demand higher wages to fight price rises for goods and services.

Creditors seek higher rates of interest which damages borrowing and tightens credit.

Businesses combat rising costs with higher prices to consumers, which pushes workers to demand higher wages. That’s the wage price-spiral, the inflation genie.

There are upsides to the crisis. Inventiveness will flourish. The virtual economy will birth new employers with new technologies.

Populations will shift out of congested urban commutes for the fresh air of the country.

Conversely the growth in the omni-connected world will push ever more consumers back to the physical one, to get a break.

The increasing trend towards fitness, personal training, walking, cycling, hiking, yoga and community activities will grow.

These micro businesses don’t lend themselves to global brand building but to local business establishment and jobs.

Growth in organic food, supplements and home cooking will accompany the health surge, but still remain an unaffordable choice for the mass consumer market where low price will be critical.

Survivors will be determined by who can best play the low-cost food game and deliver to the door.

But it’s important not to overstate the changes, the world doesn’t spin on a dime, it will be incremental. Much is yet uncertain.

How will the tax base be widened? By how much will employers look through remote working to weed out the least efficient and create a secondary wave of redundancies?

How will the State engineer a new stratum, a purgatory between employment and unemployment, where workers go to retrain, educate and upskill to match the gig economy that remote working is accelerating?

How will a new social contract avoid the catastrophe of the last which split workers between those inside and outside the castle walls?

There is a fledgling government in formation talks. It deserves to emerge into a population that gets it.

That there is no magic wand despite what populists say, that we are down but never out and that we are ready to get back into the contest.

It has been ever this way since, this month, 851 years ago.

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