Those that have read this blog before know I sometimes get a little cross. Across the Western World many of our political class play fast and loose with the truth, engage in petty point scoring with each other and sow division, discord and discomfort across our societies. For what? Largely to advance their own political careers and inflate their already substantial egos. Still, I guess there is little point moaning about it. This is the world social media has created. The trivialisation of politics reflects the trivialisation of so much else in our society. Many of us live our lives through the lens of a digital personality. We polish these digital appearances to try to maximise the admiration and envy of our peers. All a bit tragic really.
Meanwhile, here in the UK, we’ve all been struggling to decipher exactly what Brexit will mean. Opinion polls continue to show a nation split broadly down the middle. Some of us would prefer it not to happen. Others are fervently keen that it should. That’s why it was good to see a new set of voices join the debate; one it seems with a firm view that we should have another vote to decide.
If you haven’t seen it yet I advise you check out the Wooferendum.
No, I’m not kidding folks. Amid the implementation of the most momentous political decision of our age you can rely on the British to mock themselves. Barking mad as it may seem, a campaign is building to allow dogs to vote on the issue. And why not? As one wag put it (sorry) dogs arguably are at least as qualified as the great British public to vote on the matter. After all Leave and Stay are two words that even dogs understand.
Putting this nonsense to one side, how do you run a business in an environment of unstable politics at home, geopolitical upheaval, reckless fiscal policy in the US and the imminent experiment that is the withdrawal from unprecedented quantitative easing (QE)? I’m no more in possession of a crystal ball than any of you but this is what I’m saying to my clients as they peer into the future fog.
Let’s take Brexit first. It’s clearly unsettling to face so much uncertainty but the comfort I take is there is no real sense for anyone in destroying the trading environment for UK and European business. I suspect, whether Brexit happens or doesn’t, trade will go on maybe with just a little more friction and administrative effort. Businesses may have to adapt how they do things to some extent but I think this will all be a little less dramatic than either side would suggest.
What about geopolitics? Let’s be clear, some terrible things are happening in the world. Unfortunately, terrible things have always happened and whilst we have a duty to try to influence world affairs to make things better there is no more fighting, war or tragedy in the world than over the last 50 years, arguably less. This doesn’t make it any better but it does suggest we have to assume that the Great Powers will avoid Armageddon and therefore, we should plan for the world to continue to grow, develop and learn.
US fiscal policy? On the face of most normal analysis the passing of the Tax Cuts and Jobs Act of 2017 is a wild experiment. The Republican Party that baulked at the perfectly logical stimulus applied in the Great Recession have now passed a $1.5tn tax cut adding to an already enormous fiscal deficit at a time when the economy is running hot after a long expansion and when demographics will naturally lead to higher deficits anyway. The US has embarked upon an enormous exercise in Reagan style trickledown economics. Trump argues growth will magically inflate away the deficit. Something may well inflate but I’d suggest it will be prices and bond yields that go up. This is one way to get rid of the burden of debt but it doesn’t create real prosperity, for that you need the slow grind of productivity improvement which requires investment, training, and technological progress. We shall see how this experiment pans out but as a business owner I’d be thinking about how inflation might affect my business and ensure my business can respond. Agreeing a long-term price with customers now might not be a wise course of action.
Finally, there is the removal of QE and the desperate desire of the world’s central banks to restore some monetary ammunition to their guns before the next recession hits. This recovery is long in the tooth and a cyclical downturn may not be far away. When it comes, outside of the US, conventional monetary policy has nothing to offer at this point and unconventional policy (QE) has unintended consequences as we’ve seen with widening inequality and the political implications of nationalism, protectionism and isolationism. Interest rates will rise over the next 12-24 months, slowly at first but I’d expect the pace to quicken into 2019 and beyond. Don’t be the frog that boils in the heat of rising rates.
So, in short, Brexit will probably be boring, the world will not implode, the US will face a fiscal crisis and inflation but maybe not for some time and interest rates will gravitate up towards the heady heights of 2-3 per cent before the next recession brings them back down.
Make no bones about it, it’s going to be a ‘ruff’ ride.