The End of an Age of Excess?

Reading the British press (and listening to British business people), one would be forgiven that thinking the average Brit is quaking in his over-mortgaged home, afraid to go out and spend money lest he lose his job, his car, his house etc. Three days in London have convinced me otherwise. The mood is sour but the behaviour unchanged. Crowds are still milling around the shops, pubs are full, traffic is heavy. In other words, things don't look too bad despite the headlines.

The economy is likely to get worse, and what I've witnessed in London this week could have just been a blip brought on by the lovely spring weather. If things do get worse, and unemployment tops three million, will people change their behaviour? Will they turn down tempting offers of consumer loans, 110% mortgages, half price sofas with another 50% off and nothing to pay until May 2011? Will they save and produce rather than borrow and consume? Will they have learnt their lesson?

I doubt it. The economy is driven by man's basic need to show himself better than his fellow man. Cooler clothes, flashier cars, bigger houses. This was proved long ago in an experiment in which people were asked whether they'd rather have a 100% pay rise (and have everyone earn the same as them), or take a 50% pay cut (yet still be earning more than everyone else). The overwhelming response was - the latter.

Once we've got over this economic crisis, there will be scars on the collective psyche, but mankind is a social animal, keen on displaying trappings of status and hierarchy. The drive to consume to show off will always keep the economy moving along. Peaks and troughs are here to stay - as Russian economist Nikolai Kondratiev pointed out. He identified 50- to 60-year commodity price cycles going back to Egyptian times. The reason we're now 80 years between cycles is because humans live longer.