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History doesn't hold the answer

Vulnerable, isolated, running on fumes, and facing the worst winter since the 1970s. That's one US media organisation's depiction of “Brexit Britain”, which it concludes is fast becoming a dystopia, not a utopia.

You can see why they might take that view. Even business leaders, incensed that the government is blaming the whole sorry mess on the private sector’s “addiction” to cheap labour and lack of preparedness for the current supply challenges, are predicting that the problems causing empty fuel pumps and empty shelves will last two years and not the two months suggested by chancellor Rishi Sunak. And speaking of the 1970s, stagflation – that lethal and hard to cure combination of low-to-no growth and inflation – has been creeping back into economists’ vocabulary as a plausible risk triggered by the growing energy crisis (see Chris Dillow here).

Of course, whatever ails the UK, the US has its own plateful of big problems, and its own (1960s) throwbacks. Social media giant Facebook, according to the testimony of former employee Frances Haugen, has been behaving in the manner of tobacco companies who hid the dangers of smoking, and of car makers before seat belts became compulsory. She says the company knew its platforms were harmful to children but prioritised profits over user safety. She is not alone in calling for US lawmakers to curb the powerful big tech sector.

The US is also in the grip of a debt ceiling impasse, not for the first time, or even the second time, and pondering a range of solutions to break the deadlock, including issuing a single $1tn coin to be deposited at the Treasury to avoid the need for more debt.  

For Neil Shearing at Capital Economics however, it’s not the 1970s that spring to mind when gazing out on the UK economic landscape. It’s the post-war period. Then, as now, he argues, there had been a huge shock to the UK’s economic way of life and many sectors faced acute worker shortages even as unemployment was rising. There were difficulties matching the supply of demobbed workers to available jobs. Between 1945 and 1950 the price of oil increased by 70 per cent. Plus managing the wartime economy necessitated a large expansion in the powers of the state and a huge increase in government spending.

Shearing points out that while challenges facing the economy after the war were huge, “the sky did not fall in”. Our investor in this week’s Portfolio Clinic is even more sanguine: he’s lived through crashes in the 1970s, in 1980, 1987, 2000-01, 2008 and the recent pandemic and “is not concerned at the prospect of a crash even if it was over 50 per cent”.

History might repeat itself but we need new solutions to solve the problems in front of us. We cannot be complacent about how much change and drive is required to move the world on. It might be comforting to build back just-as-things-were-before, but it's unlikely to help. Given everything we know about the power of investing and the importance of R&D, it seems rather depressing that dividends are back within touching distance of their pre-pandemic peak with total FTSE 100 dividend payments forecast to grow by 36 per cent this year to £84.1bn, according to AJ Bell. Miners and oil majors (and pharma too) all feature prominently in the top dividend payers list. Yet right now there is an urgent need to invest in the future, something James Norrington points out in his report on greenwashing. Ploughing at least some of that money into developing truly carbon-free emissions might be a better and far more profitable use of that money than making bold but empty promises.