Although I found the stories of the businessmen I spoke to very fascinating, I felt that my article would benefit from also including the views of a respected economist, who could give their own observations about the situation on a broader scale. I felt that this would complement the personal experiences and views which the businessmen had provided me with.
I approached Gary Stevenson, a prominent economist who has appeared on Radio 4's Today programme, as well as LBC, and he agreed to be interviewed for the article. Gary became Citibank's most profitable trader worldwide in 2011 after predicting that there would be no swift recovery from the 2008/9 Great Recession. He retired a millionaire at the age of 27 and now devotes his time to studying and educating others on the economics of inequality.
Below is the transcript of our interview, which explored the subjects of High Street decline, the future of the national economy, and the housing crisis.
Toby Foster: What impact do you think the pandemic has had on the UK housing crisis?
Gary Stevenson: Covid and housing is interesting. Everyone was predicting house prices would collapse. But I said back in March that prices would rise, due to the huge amount of money printing. This printed money has ended up with richer people, [who] tend to use extra money to buy houses and other investments - including stocks.
I also predicted that stocks would rise a lot. My predictions have been good so far - stocks, housing and gold are all up hugely.
If that is the response, [there will be a] big increase in house prices, affecting rich and poor, old and young very differently.
It will have big implications for social mobility.
Austerity and government debt is a bit of a hot issue right now - a lot of the popular reporting has been pretty bad in my opinion. But I guess that's why they're journalists, not traders.
TF: Do you think we will still reach a tipping point with house prices? Is there a bubble to be burst? Or will they just continue to increase exponentially, particularly with foreign investment pouring in too?
GS: No, I don't think it's a bubble. Inequality is getting worse and worse, [and] as that happens, houses will get more and more unaffordable.
[It's a] pessimistic prediction, but it will happen. If you want to see really unaffordable housing, go to the really unequal world cities - Hong Kong, Mumbai - or the very unequal times in English history, like the nineteenth century. Housing affordability can and will get much worse if nothing serious is done about inequality - and it seems like nothing serious will be done.
TF: I think that plays into the High Street issue too, where the middle-market stores in particular are getting squeezed. Do you think the decline of the High Street is inevitable now or can it still be saved?
GS: A lot of people, including a lot of relatively "middle class" people, have accumulated savings during this crisis. That could lead to something of a "mini-boom" if the virus itself is resolved quickly, since so many people are sitting on relatively large amounts of cash.
Of course, the flip side of that is that many shops, pubs and bars are sitting on big losses for this period, and will struggle to recover.
But in the long term, inequality jeopardises the High Street, since the High Street generally sells to the middle, especially in poorer or middle-income areas. High Streets in richer areas will probably do just fine in the long run.
Ultimately the decline of the High Street is a long term issue. Covid will probably only accelerate that trend. But that is a prediction I hold with less certainty than the housing market. The potential for a probably temporary mini-boom exists, although it is not the most likely scenario in my opinion.
TF: Is that something that Rishi Sunak should intervene more substantially on? If so, should he intervene on the demand side or supply side? What about stimulus cheques for consumers, and bigger grants for businesses? Or is that just a sticking plaster?
GS: There are definitely things Sunak could do to help the poor and middle, who are ultimately the majority of the people and the market that most shops rely on.
The problem is that any commitments become difficult to fund if the Chancellor is unable or unwilling to really nail down taxation of the very rich, which is a long-running and unresolved problem. Taxing the middle and giving it back to the middle won't achieve anything.
Of course, they are increasingly using the strategy of printing money, which is a very interesting alternative option, and has much support on the left and amongst the 'Modern Monetary Theory' crowd. But personally, I don't think printing to support government debts on a large scale is a sensible or sustainable long term solution.
Although [quantitative easing] could be, and has been, a very useful stopgap to help us deal with these times of acute crisis, if overdone, it could cause big problems with increased inequality and housing unaffordability, in my opinion.
TF: Are we sitting on an inflationary bubble? CPI inflation is very low at the moment, but once the economic wheels start turning again, could inflation spiral out of control? Sunak has talked about being very worried over the prospect of higher interest rates with all the additional money printed.
GS: This is an interesting question, and one which I am not certain about. I definitely think that a big jump in inflation is possible and maybe even probable during the possible post-covid "mini-boom" which I spoke about, as people go out and spend their big cash-piles after a year of not being able to spend.
If you go back to 2008, there was also a considerable spike in inflation during the recovery in 2010 and 2011. I think we will get a spike here, although I wouldn't like to call exactly how big it would be, and it would probably be restricted to certain sectors - holidays and higher end restaurants are an obvious guess.
A jump in inflation will be a bitter pill to swallow for people who have lost jobs, or are on frozen or reduced wages. As scant consolation, I would expect any inflation boom to be temporary, just like the 2010 to 2011 boom was, especially if the government pursues an austerity path.
TF: Just on the subject of small businesses, particularly sole traders, do you think the government needs to do more to help them in particular? It seems like they have been one of the more hidden casualties of the pandemic, with the collapses of Arcadia and Debenhams dominating headlines. I appreciate we're a different economy, but the comparisons to Germany in terms of support seem quite unfavourable.
GS: They definitely seem to have drawn the short straw in terms of support, especially compared to larger businesses, so I would probably say yes.
Many have been falling through the gaps. It seems quite unfair and will drag on the economy for a long time if the owners of small businesses, who are often not particularly rich people, have to carry these huge losses. Although, as always, I am cognizant that the financial means of the government become constrained if they are unwilling or unable to tax the very rich, which it seems is the case.
TF: Off the back of the vaccine news, are you predicting that we will see a quick recovery in 2021/22 - the 'V-shaped recovery' some had forecast? Or is this going to be more like 2008 to 2011, with many setbacks along the way?
GS: A sharp initial bounce back is possible. But I am predicting prolonged economic weakness, with a bifurcation between what happens to ordinary people, with low wages and rising prices, and what happens to the richest, as asset prices explode higher. All of that happened after 2008 too, and I am predicting it will happen again, but with possibly a quicker bounce back in assets, which we are already seeing - since this time, trades can look back and see what happened after 2008, so they will foresee it.
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