Bad, not terrible


It seems like the worst of news. Cash-strapped Americans have given up their cars andf their coffee. Car firms in Detroit say their sales are down 20% on last year, and Starbucks is closing 600 of its 7000-odd company-owned coffee bars. How bad can things get?

A lot worse, probably, because I'm not convinced these problems are completely due to an economic slowdown. The thing about hard times is that they are like a forest fire. A lot of dead old wood goes up in smoke but the tender, younger plants survive and go on to grow and bloom in a couple of years' time. The fact is that cars and other capital goods don't do at all well in a downturn – they are a purchase which people don't mind postponing for a few months or more. And, even Americans know that American cars are rubbish – lumbering, heavy, greedy, unresponsive. Detroit can only survive so long on patriotic purchases: once people are strapped for cash, if they buy at all they buy Japanese.

As for Starbucks, they used to be great but they have lost their edge. The last few times I've visited one (in the UK admittedly), my coffee has been weak and cold, the place has been littered with debris from previous customers, and the staff have roped off large areas of the seating, for their convenience rather than ours. That's bad management, and that dead wood has to get burned off.

In the UK, meanwhile, Marks & Spencer have suffered some bad figures, and that's thought particularly bad for a store that has been bouncing back so energetically. But M&S is a very upmarket store. It goes for quality in food and clothing, but that comes at a price. Again, when people are a bit short, it's the luxuries they cut back on. Everyone goes downmarket until things recover.

So sure, things are bad but I don't think we should play up these particular problems as a sign of coming catastrophe. The market is hugely diverse, and things rise and fall all the time. And as Adam Smith said, 'There's a deal of ruin in a nation.'