Some activities will transfer from essential to discretionary

The following exchange of messages in Tim Morgan’s blog is both interesting and important.


    I’ve been ‘missing in action’ for a week or so, partly finalising the latest version of the model (SEEDS 23), and partly upgrading systems.

    Apologies if you’ve been waiting for comments to be moderated, or for replies to questions. I’ll catch up as soon as possible.

    As well as incorporating a lot of new data, SEEDS 23 is a streamlined and more efficient version of the model.

    But its conclusions haven’t changed in any significant way.

    The pace of economic change, though, is accelerating. The focus is switching towards discretionary distress – which will intensify as covid-support liquidity drains from the system – and affordability issues, compounded by the inevitability of rising rates.

    Like Basil Fawlty when he was “fresh out of Waldorfs”, central banks are ‘fresh out of options’.

    Inflation is the game-changer, the one thing that can’t be remedied, but can only be made worse, by repeating the “innovations” of 2008-09. Many countries’ official rates now in or close to double-digits. Inflation can be traced to a combination of energy issues and over-loose monetary policy.

    It seems to me that things are panning out pretty much as many of us have expected. I hope that the new version of SEEDS will give us greater visibility, helping us to clarify the questions without, necessarily, supplying the answers.

  2. Necessities and discretionaries
    Worth a read and a listen to the linked video…especially for the British:

    For true necessities, the demand is inelastic, which means that a small reduction in supply results in a large increase in monetary costs. So, as an example, it is quite possible that the British could increase the percentage of income spent on food from 10 percent to 40 percent in a very brief period of time. The effect of the monetary shift would collapse much of the house of cards so enthusiastically erected by Neo-conservative governments and financial markets.

    Don Stewart

    • Thanks Don.

      For a long time now I’ve been endeavouring to emphasise the importance of essentials, and hence of discretionaries, within the overall allocation of prosperity. The latest version of SEEDS confirms that top-line prosperity and the cost of essentials are converging towards a moment, varying between countries, at which the prosperity of the average person is below the projected real cost of essentials.

      Since this “average” person is rather notional, what this means in practice is that ever-growing numbers of people are struggling to meet the cost of essentials.

      Your reference to “true necessities” underlines the point that the definition of “essential” varies over time, and for that matter geographically as well. For instance, most Westerners today would define a television, and perhaps a car, as necessities, whereas both were considered luxuries in the not-too-distant past.

      Therefore, as convergence (between prosperity and essentials) draws nearer, and cross-over looms, the probability is that the definition of “essential” will change, this time in a downwards direction. This has the effect of transferring some activities from the essential to the discretionary category.

      It seems to me that these processes are not remotely understood at the level of decision-making. If they were, at least three things would be happening.

      First, and most obviously, investors would flee from discretionary sectors.

      Second, businesses would start to change their models away from, for example, the “streams of income” model that has become increasingly popular in recent times.

      Third, politicians would start to recognise that the battleground of the future is the provision of essentials, available and affordable to all.