I get the feeling that this particular horse has bolted. I talk of course not of an actual horse, but of the financial crisis.
As banks lose confidence in one another and credit is tightened, world demand has started to fall sharply. This means overproduction and mass unemployment.
Adam Smith very elequently described this process way back in 1776:
“When the quantity brought to market exceeds the effectual demand, it cannot be all sold to those who are willing to pay the whole value of rent, wages, and profit, which must be paid in order to bring it thither… If at any time it [supply] exceeds the effectual demand, some of the component parts of its price must be paid below their natural rate… If it is wages… the interest of the labourers… will prompt them to withdraw a part of their labour or stock from this employment.”
In other words, people get made redundant.
We are beginning to see Smith’s process working its way through. The Economist tells us that the price of raw materials and shipping costs are falling. For example, since the summer the price of steel has fallen by 20-70%, alongside other base metals like Copper and aluminum. Key measures for shipping commodity prices are down such as the Baltic Dry Index, down 85% since May.
This fall in demand, of which these figures only allow a snap-shot, is starting to create unemployment as businesses cut production. Figures released yesterday show unemployment here in the UK up 164,000 in the three months up to the end of August. By Christmas the number of unemployed is projected to reach 2 million, and by 2010 some analysts predict unemployment will reach some 3 million.
This horse has certainly bolted, leaving politicians looking a lot like by-standers.