Dead Cat Bounce

The chancellor, seems to think the economy is recovering and has been going around like a little spoiled kid, claiming that he in fact was right all along. Naturally the usual suspects in the right wing elements of the media have jumped straight in with both feet, lapping it up like a cat on speed.

Now they could be right, it could be signs of recovery. After all it’s been 6 years and even after this much time back in the dark days of the great depression some sort of upward movement had begun within three years. Althought with an unprecedented number of households in the UK now dependant on food banks and even the UN condemning the Tory bedroom tax (how soon before unemployed brits are seek asylum in France on grounds of “political oppression” by the Tories). So it’s a little early to say we’re out of the woods.

And of course, whether said “growth” is due to the chancellors policies (it’s kind of like the high priests on top of a Mayan pyramid claiming that the rainy season starting was due to them sacrificed dozens of people…rather than due to this think called “the weather”) or due to external factors (the recovery in Europe and the US). i.e. the economy is recovering despite the Tories not because of them. Indeed, any recovery might well be down to the fact the Tories aren’t hacking away at the budget as much as they’d originally planned.

..or here’s another theory, it could be what economists call “a dead cat bounce”. It is unfortunately a known phenomenon that an otherwise collapsing stock or economy will not obey an otherwise constant downward trend. As economists put it, even a dead cat will bounce if thrown from a great height, but that doesn’t mean the cat’s showing signs of life.

This phenomenon can be explained by human nature. Those who held onto their shares in a company in the forlorn hope of a recovery, eventually come to their senses, start cutting and running and selling their shares for whatever price they can get. Enough people do it at once and you can see a temporary apparent “recovery” but eventually nature takes its course and the price falls again.

The same thing can effect economies, and we’ve seen a couple of such “bounces” across the world from time to time over the last few years. Often this is as a result of people realising that the recession isn’t going to be the “temporary” blip they had hoped. For example, a company realises that they aren’t going to get a loan to finance that big expansion they’ve long planned and decide to abandon these plans and instead hire some contractors to convert some empty offices into storage space. Or a home owner realises that the next rung of the property ladder will be out of reach for some time to come, decides to stay put and adds an extension to his house instead. Or a faith group, swamped by people seeking to use its food bank and guidance centre end up expanding their premises to cope. All of these sorts of decisions can lead to a temporary boost in economic activity and again enough people do it at the same time, it can create the illusion of a recovery. But that’s it.

And of course we’ve been here before. Back in the bad old days of the last big recession, under the Tory government of John Major, the chancellor Norman Lamont went through this cycle where every few weeks he’d announce that the recession was over and the green shoots of recovery were visible, only to go on Newsnight a few days later and be called a pillock by Jeremy Paxman when it was obvious that he was seeing things (with hindsight one had to wonder whether he was smoking some green shoots at the time!). Towards the end it got to stage that if a yuppie who’d jumped from his office window landed in from of Lamont, he’d begin interpreting it as a sign of recovery, given that London was now literally raining investors.

So Osborne and “call me dave” will excuse me when I say that I’ll reserve judgement on whether the recession is over until all the facts are in. And I’ll leave the question as to whether their policies extended and deepened the recession, or did have a positive effect to historians.

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