Reopening Primark is not going to get our economic mojo back, whatever our leaders promise

How many of those queueing yesterday were doing so because they missed the experience, rather than because they urgently needed to buy something? And that’s where the danger lies

Glance at the newspaper front pages and it’s almost as if the lockdown is already a socially distant memory. “Shopping frenzy”, “Retail therapy”, “Shoppers on loose”, the headlines proclaim, over images of the type of queues we normally see on the first day of the sales. The only difference is a smattering of masks.

If Britain is a nation of shoppers one might be tempted to conclude we’re getting our mojo back, that Primark’s re-opening has primed the economic engine.

But be careful of appearances.

Shopping is undoubtedly important for the economy, with retail sales accounting for a fifth of all economic activity in a typical year. It supports hundreds of thousands of retail jobs directly and many more indirectly in distribution centres and manufacturing supply chains. Shopping is also important for the ambiance of town centres. It’s an important leisure and recreational activity in its own right.

How many of those queueing yesterday were doing so because they missed the experience after weeks of lockdown rather than because they urgently needed to buy something? And that’s, in a sense, where the danger lies.

The re-opening of non-essential shops after almost three months of lockdown was always likely to unleash some pent-up demand. But will it be sustained? Will consumer spending – a vital driver of economic activity in any modern economy – keep flowing?

There is a case for optimism. The most salient feature of this crisis has been economic suffering – people have lost their jobs, been furloughed, lost work, lost paid hours. Millions have seen their incomes fall.

Yet surveys show that millions – those lucky enough to be able to work from home in knowledge-based service jobs – have also seen their incomes largely maintained while their opportunities to spend them have collapsed. Savings rates have automatically risen for many households. And the amount of consumer credit taken on by households as a whole fell at a record pace in April.

This suggests that, as the economy opens up, there will be a great deal of raw household spending firepower available. It’s theoretically possible that there could be a consumer spending boom that will help drive the overall economy into that longed-for V-shaped comeback. Some analysts have made this case. But is it likely to materialise?

Sadly, there is another scenario which seems just as likely, if not more so.

Households, even those who have been forced to save, might be too nervous to spend as we emerge from lockdown. They may fear another outbreak of the epidemic that could force another lockdown. They may want to keep on saving, rather than spend, to build up their financial cushion for future crisis.

“All crises leave scars and this crisis assuredly will be no exception,” warned the Bank of England’s chief economist Andy Haldane last month.

Indeed, Haldane fears that one legacy of this crisis might be something that psychologists call “dread risk”, an exaggerated sense of fear and insecurity.

John Maynard Keynes, the father of modern macroeconomics, understood how central psychology was to economic behaviour. He wrote in 1936 of how it was “animal spirits – a spontaneous urge to action rather than inaction” that drove human behaviour, rather than mathematical calculations by people of future income, profit and probabilities of success.

It’s no great stretch to imagine that this traumatic pandemic might result in subdued animal spirits. Yet this should not be a counsel of hopelessness. Keynes’s observations came at a time when the world was mired in the Great Depression. In that period, he urged a large injection of government spending on public infrastructure and other things not only to lift economic activity directly but to do so indirectly, by encouraging people to spend their money, rather than to save it, and to encourage businesses to invest in anticipation of better times ahead.

The circumstances as we emerge from the coronavirus pandemic lockdown are different. In the absence of a vaccine, something that creates a very real risk of another outbreak, there are, arguably, good reasons for households and businesses to be cautious, for them to save rather than spend.

But the Keynesian insight is nevertheless valuable. If economic policymakers – governments and central banks – take account of these human psychological restraints they can be more effective in delivering a stronger economy and rising living standards.