I’ve been racking my brain trying to make sense of everything. One day in the spring of 2020 the world unilaterally decided to stop everything –everything that was previously seen as so precious that nothing should be allowed to stand in its way.
But what happens next? When the lockdown ends, will people return to the way we’ve lived, or will we take the time to forge a new path? Well, I suspect the answer is complicated…
Straw, camel, kaboom…
Before we get to the business of cycling, we should perhaps roll back a few steps to look at how the world was before the pandemic.
Before everything came to a grinding halt the economy was already facing what some would call ‘headwinds’. There’s a reason why wages have been stagnant, or why many of us feel as though the economic growth politicians have talked about since the 2008 financial crisis hasn’t really made much of a difference to the average human.
The 2008 financial crisis was largely caused by debt, deregulation and an over-exposed banking system. Bankers realised they could make huge amounts of money bundling normally ‘safe’ financial products such as mortgages into ‘Collateralised Debt Obligations’ and selling them onto investors. These bond-like securities may have started off pretty safe, but after a while they started getting desperate for mortgages to put into them –there’s only so many people in a position to throw down a few hundred-thousand on a new home, so they started offering mortgages to people who really shouldn’t be borrowing –people with no proof of income or employment. We know these now as sub-prime.
Well, you can pretty much guess what happened next. These homeowners started to default on their mortgages in large numbers, making the underlying bond effectively worthless. In the space of a year, a raft of financial institutions found themselves over-exposed and went belly-up, including Northern Rock and Lehman Brothers, but the effects of this crisis are still being felt today.
Stagnant wages, low interest rates and mounting levels of personal, corporate and government debt have trapped us in a hole that means interest rates are heading towards negative territory, but raising them would mean defaults left, right and centre.
Interest rates are one of the few levers central banks have at their disposal to stimulate an economy or control inflation. Low interest rates encourage people to spend more, high interest rates encourage people to save more. However, if you raise interest rates when there’s a lot of debt about, you’re going to get a lot of defaults.
The other lever is quantitative easing, which is something central banks have been doing since the financial crisis. Printing money puts liquidity into the system, but devalues the currency when done to excess. This money has largely been scooped up by large corporations and used to buy back their own shares.
We have an economy largely dependent upon consumption, which suffers when people hold onto their money, but is fragile when that money stops. Unfortunately, we collectively have little saved, but large amounts of debt, making us especially vulnerable.
That was before the outbreak.
There’s a lot of highly indebted companies out there, propping up a stock market largely kept afloat by a sustained period of quantitative easing –essentially printing more money. Perversely we’re expecting these heavily indebted companies to pay the wages of a lot of heavily indebted people. Understandably, the bailout queue is quite a lot bigger than it was in 2008 – 3.8 million unemployment claims in the US alone –and rising.
Writing in the Guardian, the economist said UK unemployment could rapidly rise to more than 6 million people, around 21% of the entire workforce, based on analysis of US job market figures that suggest unemployment across the Atlantic could reach 52.8 million, around 32% of the workforce.
This is where we get into uncharted waters. There are entire industries that may not be long for this world. With social distancing likely to be in effect until a reliable vaccine can be found –potentially a year or more away, businesses will struggle to regain the turnover they once had. Restaurants that do open they won’t be able to seat as many, shops will be more reliant on distance selling, which will require some swift adaptation.
We’ve also discovered that office work can largely be done from home –so why have one of those swanky, expensive office buildings in the centre of town?
This is where we get to the thorny issue of commuting. Those of us able to work from home have probably got over the weird hump of adjustment by now. Having to queue outside the shop to get groceries is also starting to feel quite normal.
The one upside of all this is that the roads are much quieter than we are used to. In our previous instalment we talked about how cities around the world were hoping to lock in this new found peace and harmony on our streets, to make it easier to socially distance on our pavements and to get around on bicycles more safely.
Since then, plans for a cycle lane on Castle Street have been stepped up and are apparently going in on the 17th May. We hope this is just the start. Bike shops like Halfords have been doing well (at least in terms of share price), but our local bike shops are still the best place to pick up new bikes and gear.
Cycling is being seen as the solution, finally, but who is going to take it up? Those of us already cycling will no doubt continue. Those that were using public transport may be unwilling or unable to waste money on a car, but are keen to avoid being too close to others may find themselves reaching for the bicycle.
But what about motorists?
As we’ve talked about before, cars are expensive —really expensive. Much of the debt I’ve ever had has been the consequence of car ownership throughout my 20s and 30s. They’re often a huge financial burden, but when employment is precarious it is especially important to clear as much debt as we can and save as much as we can.
The coronavirus pandemic could cost the global economy between $5.8tn and $8.8tn (£4.7tn-£7.1tn), according to Asian Development Bank (ADB).
That’s more than double last month’s prediction and equates to 6.4%-9.7% of the world’s economic output.
There will be people who will find it difficult to make their PCP or hire purchase payments on their cars, their mortgage payments and their credit card payments. Economies around the world are heading into recession, consumer spending has slumped and businesses are going to struggle to make it through –that includes the car industry, which has seen the global supply chain effectively collapse.
People will only buy cars if they can afford them though, and with the economy expected to go into a steep recession, that can not be guaranteed.
“Invariably, if consumer confidence is low, you’re looking at tightening belts,” admits Mike Hawes, chief executive of the SMMT.
There will be some who can comfortably afford their car, have paid for it outright, or are in a relatively safe job, but there will also be a great many who were barely hanging on before all this and the pandemic was enough to push them over the edge.
The car in the driveway may turn into an unnecessary burden at a time when so many of us just want to hunker down and ride this storm out; keep a roof over our heads and put food on the table.
There are scary times ahead for all of us, economically and existentially. Whilst it is tempting to allow ourselves the joy of hearing governments push cycling more than they’ve done in recent memory, it is important to remember that it is happening at a time when those car journeys we used to complain about are no longer being made, not because we have switched to bicycles willingly, but because we no longer have somewhere to go.
Hopefully there will come a time in the not too distant future where we are all gainfully employed in whatever industries are strong enough to survive this crisis –or are created in spite of it. I do hope that we will still ride our bikes to work, shop or meet friends because it’s the best use of our money and it makes us feel healthy and alive, but I’m afraid we’ve got a long, long way to go yet.