Most businesses and households can cope with one off financial pressures, so many economists, trained on the empirical truths of the good years do not fret too much at a 2.5% rise in the rate of VAT. I would suggest that this is because we usually dismiss such challenges since they have, in the past, not hit at the same time as other challenges, but today, things are different. The cost of oil is above 5.5% of GDP, floating at a dangerous 6.7%. From past evidence, it would seem that if the oil price ever drifts above 5.5%, we enter a recession within a year. In 2008, it hit 9%, the highest ever share of GDP. Obviously when you are spending so much of the national income on a fuel, you have less to spend on the things that actually use the fuel, so consumption becomes impractical, and the economy shrinks to correct the disequilibrium of the complementary demand between the fuel and the end product. With creeping inflation, above average earning rises, the incoming austerity measures such as the VAT hike and public spending cuts, this economy could be in for a very hard time.
It struck me today that we are so dependant on supermarkets for many everyday "essentials" that we would be in a lot of trouble if one of the big four were to go under, particularly the old stalwarts, Tesco's and Sainsbury's. I'm not suggesting that either will go bankrupt, to the contrary, I believe those particular chains are in a healthy financial state, but with the prospect of 1000 firms going under in the next month due to lacklustre consumer demand, we should realise that some stores, from some companies will close. Many people, particularly the elderly, depend on local convenience stores for their shopping, so if problems such as inflation got out of hand, we would be far less able to cope as a society than we would have been in the past. If we are entering an era of stagflation, it will be unlike the 70's episode, because back then, people bought their "supplies" from a much more diverse range of sources. Suburban culture was not so prevalent as it is today.
Some stores, especially the warehouse size out of town supermarkets than sprang up in the 80s and 90s, act as "bastions" for consumers nearby, so what would happen, for instance, if one was closed. Firstly, many have petrol stations attached, so we could presume that this would go as well, which would reduce petrol availability, further cementing regional monopolies, allowing filling operators to increase their prices. People would drive further to a different supermarket. Because they would drive further they would buy more petrol, so they would have less money for food anyway. An influx of shoppers from one "bastion" to another will lead to empty shelves in the short term. It takes months to undertake complete refurbishments or extensions of existing stores, which would be necessary if there were big changes in the market like store closures, so in the short term, we can be sure that there would be food shortages and higher prices if any of the big supermarket's had to shut any, let alone all of their stores.
In the last few days, I have heard worrying news of petrol shortages. Whilst reports such as this can be expected when there is heavy snow, most of it has now cleared. What is now causing the problem is that the country's cars started running low during the snow, and there is still a backlog of consumers who need to refill. This has been badly exacerbated by a Christmas rush, as people head away to their friends and relatives for the festive season. You can expect to pay £1.249 for unleaded right now. The problem is, the price too has shot up in recent weeks, in some places by 5 pence or more. This has for some reason increase demand- people are almost certainly being sensible and expecting the price to shoot further upwards, either that or they fear more snow. For most people, a penny or two more on the litre is far from a nightmare, but along with Osborne's austerity package, the fairness of which more and more people doubt, inflation and cuts may collude to create an economic nightmare.
Remember 2008, empty stores such as Zavvi, Borders, and Woolworths gave us an "entertainment drought", giving HMV an even stronger grip on the market. HMV itself is now struggling even more, as sales disappear to the internet, ground controlled by giants such as Amazon, and Play amongst others. You can only take things away from the high street for so long though, until you get a previously bustling shopping district spiralling into becoming a ghost town. This is a well recognised geographical and economic phenomenon. As shops close, consumers find it less appealing to go out, so sales drop further, and others go under, until the area becomes increasingly empty, or increasing dominated by very few brands, which is never healthy.
Trends suggest that the end of materialistic consumerism, typified by actually going out to buy products, is over, and we are seeing more and more virtual consumerism. It may be environmentally sound when people stop going out to buy SUVs, and instead opt for the video game, where they can drive a digital one, purchased as an internet download, but this shift will create challenges, most notably, in the way people are employed. It only takes a few web geeks to run a website, and a warehouse full of carefully designed robots, to sell people something in the new virtual world. A growing number of experts believe that "virtual consumerism" may be a solution to the negative environmental externalities of traditional capitalism, however, if this leads to less employment, we mustn't let those who are left out fall by the wayside by cutting benefits. We must recognise the full employment is no longer necessary or even efficient in a modern, more sustainable society, so we must react accordingly, by a more equitable distribution of income through higher taxes and benefits, that some elitists call "socialism". If innovation is socialism, then socialism must be good. Just because the old ways of doing things are profitable, this benefit is largely irrelevant if the profits remain controlled by the top 1%. According the Green Economics Institute, the top decile of the population earns 59% of GDP. This is an utterly unacceptable social failure that would not be accepted in any other system. If economists continue in their inability to accept and deal with the fact that things change, and sometimes new truths are not heresy but simply wisdom, then they are an undeniably discredited and morally bankrupt race.
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