Outlook: Britain is fast being transformed into a nation of debtors

Ryanair/easyJet; Executive excess

A favourite observation of Larry Summers when he was the US Treasury Secretary was that economic booms don't die of old age; instead they are killed off by the anti-inflationary zeal of central bankers. This was very much conventional wisdom at the time, and it was the reason he and other members of the Clinton administration gave for believing America's longest ever period of uninterrupted economic growth might continue more or less indefinitely.

Unfortunately, he was wrong. He was wrong about the US, and I suspect he's about to be proved wrong in the application of his theory to Britain too. Traditionally recessions happen because demand at the end of a long boom outstrips supply causing prices to rise. In an effort to choke off the subsequent inflation, policymakers raise interest rates which reduces demand leading to a surplus of capacity, cut backs, job losses and so on and so forth.

This time around, the boom is quite literally dying of old age. At the end of the boom, supply came hugely to outstrip demand over a wide range of industries. To support demand as business grapples with its excess of capacity and debt, central bankers in the US and Britain have been cutting interest rates, but for how much longer can the gene therapy of supporting the economy by encouraging consumers to borrow and spend continue to work?

There were some worrying straws in the wind in yesterday's clutch of economic statistics. Retailers appear to have had a bad Easter, despite the end of the war, which was meant to provide at least a short-term boost. There is no obvious reason for this apart from the possibility that people have looked at their borrowings ­ on average now higher as a percentage of income than anywhere in the developed world other than Japan ­ and their pay cheques for April, which will for the first time show the impact of higher national insurance, and decided to spend less.

Figures from the Council for Mortgage Lenders reinforce the picture of gathering gloom by pointing to a significant fall off in the housing market. Lending for house purchases in March was 37 per cent lower than its July peak, and although the war can be blamed for a good portion, it cannot be the whole story given the long lead times involved in any house purchase.

That fall is more than cancelled out by booming remortgage business, as borrowers take advantage of historically lowrates to refinance loans. At this stage we don't know how much of this borrowing was new borrowing to finance consumption, equity withdrawal as it is known, or how much was straight refinancing. But if the housing market is cooling, equity withdrawal must eventually slow too, removing another prop to consumption.

The hope of policymakers is that they can keep consumption growing for long enough to see a pick-up in business investment. It's proving a long wait, so long, in fact, that even Gordon Brown seems to have given up the quest. To support his Budget growth forecasts, he is being forced to assume continued strong growth in consumption for the next three years, which is one of the reasons nobody can quite believe them. What does the Chancellor want to do ­ turn us into a nation of debtors?

The continued rise in credit card and other forms of unsecured lending ­ the popular press has become filled with advertisements for lending deals ­ is a deeply worrying phenomenon which is bound to end badly for many, with or without a rise in interest rates.

Ryanair/easyJet

Ryanair has decided that attacking British Airways is a bit like "kicking a dead sheep" and is now having a go instead at the "load of bullocks" talked by its no-frills rival easyJet. For those that don't know it, the reference to "bullocks" is drawn from easyJet's present advertising campaign. Michael O'Leary, Ryanair's inexhaustible chief executive, has enlisted the help of the Iraqi Information Minister for his own ads, which may or may not turn out to be in poor taste depending on whether Comical Ali is still alive.

Joking aside, it is a little difficult to see what Ryanair's game plan is. EasyJet only flies to six of the 125 destinations Ryanair serves, so it is hardly a direct competitor. Even on those routes the choice is between ending up close to town with easyJet or an hour's taxi ride away with Ryanair.

What is certainly true is that Europe's no-frills market is disaggregating. At one end of the spectrum there is a genuinely low-cost, low-fares operator in the shape of Ryanair and at the other end sit a host of wannabes such as bmibaby, MyTravel Lite and Now which, to continue Mr O'Leary's metaphor, are really only mutton dressed as lamb.

EasyJet, with its higher cost structure, mixed fleet and preference for principal airports, fits somewhere in the middle, appealing to those who want a cheaper fare than BA rather than the lowest one going.

Mr O'Leary reckons that if BA and its fellow flag-carriers admit defeat in the short-haul market, then it will leave easyJet dangerously exposed enabling Ryanair to scoop the pool. Now this really does look like "bullocks", because Ryanair wouldn't remain low cost for long if there were no competition at the low-cost end of the market at all. Instead it would do what all monopolies do and maximise profits. EasyJet looks as much a survivor in no-frills travel as Ryanair. It's just different, that's all.

Executive excess

Self restraint is an admirable quality in all walks of life, but it seems entirely absent from the boardroom, where the purpose seems too often that of exporting as much of the shareholder's wealth into the CEO's personal bank account as can legally be achieved.

In a free society, there cannot and should not be any government attempt to interfere with the market mechanisms that allow this to happen, but in the absence of self restraint it is entirely understandable that shareholders are imposing their own disciplines.

This is being done in two ways. First there is the new rule which requires remuneration policies to be put to a vote, allowing shareholders formally to express their dissatisfaction. Second, there are the Higgs proposals on boardroom reform, which will allow through independent non executives a far higher degree of control than has been possible in the past.

It would have been better had boardrooms had the foresight to set proper standards for themselves, but honour, decency and leadership are virtues in short supply in many companies these days. Blaming it on the Americans, who are said to set the world standard for executive pay, won't do. To function properly, societies must have their own standards. Many executives are bringing themselves and their companies into disrepute by paying themselves so much, and it is small wonder that as a consequence so many boardrooms find themselves suddenly under siege. The masses are rising up in revolt.

jeremy.warner@independent.co.uk