As if the recession wasn’t bad enough already, this week’s snow could make it even worse. It will cost Britain around £3bn due to lost working days, says the Federation of Small Businesses (FSB). An FSB spokesman told one paper, “the economy gets put back a day as people earn less and pay less tax. People make do with what they’ve got at home, they don’t go out and buy a sandwich.” Grim news indeed.
But hang on. The FSB data presumably can’t take account of what people were doing when they were off work. For example, every sledge in the town where I live was sold within hours. That’s good for someone’s business. And apparently Betfair, the online gambling group, had its busiest Monday ever, with a 65% rise in the number of people logging in to play poker. And, of course, if you don’t buy a sandwich, it’s bad news for the sandwich maker – but that’s another £3 or £4 you’ve saved to spend on something you’d rather have in the future.
The fact that lots of people weren’t at work on Monday doesn’t mean they weren’t using their time to do anything productive. And by the same token, just because lots of people made it into work today, doesn’t mean they’re actually doing anything useful or productive either. For example, in recent years, a big chunk of our now-vanishing economic growth has been based on building properties and then swapping them with each other for ever-increasing amounts of money. We then bought lots of expensive coffees and sandwiches with the proceeds. Where did that get us? We’ve been left with a lot of jerry-built flats in places where no one wants to live, and high streets stuffed with cafés and estate agents that are doomed to shut down, if they haven’t already. Why did we waste our valuable time and scarce resources on this economic dead end? Because we thought we could make money that way.
But money is not an end in itself. It’s a tool. Ever-increasing sums of money can easily go hand in hand with a falling standard of living – just ask your average Zimbabwean. Money is only useful when it serves its function of showing us what the most fruitful use of our limited resources is at any given time. If something is in short supply, or demand is rising for it, rising prices show that it’s worth investing to address this demand. But if you fiddle with the money supply, the pricing mechanism stops working properly. House prices on both sides of the Atlantic rose because easy credit meant more money was available to spend on property. Demand for houses didn’t rise – the supply of money did. But most mistook rising prices as a signal that there were too few properties, which meant they were a good investment. They weren’t. It’s a mistake for which we’ll be paying for a long time, as James Ferguson points out in our cover story.