Tonight:
4°c
A visitor from Mars arriving in the UK today would find an economy which employs more people than at any time in its history, a stock of housing which has delivered unimagined wealth to the vast majority of home owners, interest rates which are low in comparison with those which have existed in 30 out of the past 35 years and a general level of prosperity which the population at large has never seen before. Yet everybody is so miserable.
Our visitor would find queues of people convinced that bad times are just around the corner - and would then be even more taken aback to discover that these gloomsters were the optimists. The rest of the population (fully two-thirds of it, according to one weekend poll) believes that recession is already upon us.
These pessimists have got it wrong, of course, because recession is a technical term which requires that the whole economy contracts for two successive three-month periods, and that has certainly not happened, nor anything like it. But they are right in the more general sense that the growth rate in the economy has already slowed sharply, from close to three per cent to perhaps half that rate. They are right that the place is no longer awash with easy money.
This sharp slowdown is enough to push certain sectors into recession - most obviously house-building and much of the retail sector, though not, interestingly enough, finance, which is still mainly profitable - and that creates an impression of gloom.
But it ignores the fact that most businesses in most areas are still doing well, even though the most recent data hint at a drop-off in manufacturing output and increasing inflationary pressure. Businessmen still generally claim that if they did not read the newspapers, they would think they had nothing to worry about. It is almost as if we are talking ourselves into recession.
In part perhaps we are, but it is not that simple. While it appears that economies run on money and oil, those two things only work their magic if there is the third ingredient of confidence.
If people feel good they take risks, spend money and expect to succeed. If people feel bad they don't take risks, hoard money and expect to fail. It follows that when there is almost a daily diet of bad news - of which the most recent ingredients are oil nudging $140 a barrel and some economists predicting that house prices will fall in real terms by as much as 50 per cent over the next four years - it eventually makes people depressed.
Even if the newspapers did not report it, the reality of higher oil and falling house prices would still be with us. Roosevelt put his finger on the problem in the 1930s when he said we have nothing to fear but fear itself. But he never suggested people should close their eyes to reality.
There is more to it than that, however.
There have been economic downturns throughout history but they almost always start in the corporate sector when companies overreach themselves and get into difficulties. It takes a long time for the woes of companies to begin to affect the population at large - though boards do eventually pass on the pain through short-term working and redundancies.
This time, though, the normal course of events has been reversed and the pain is being felt almost immediately by the consumer - through petrol, energy bills, house prices and the like, all of which are making people feel genuinely short of money.
If it costs £80 to fill up the car, that is £80 no longer available to spend on more enjoyable things - or on other basic necessities, for that matter. And that of course feeds the media coverage. Economic pain is not relegated to the business pages, because it is here in the nation's purses and pockets. The economy when viewed as a whole may not be in recession - but many of the people who live in it certainly are.
But even that is still not the whole explanation. In good times people tend to take their leaders for granted - but in times of uncertainty they turn to politicians for comfort, inspiration and leadership. They want reassurance that even if things are going to be difficult, the country is in safe hands and the leaders will do everything possible to minimise the damage and limit the pain. And it is here that you find the real reason why the entire nation now thinks the glass is half empty rather than half full.
The fundamental cause of the malaise is the total collapse of confidence in Gordon Brown's Government and its ability to organise its way out of anything, let alone what is billed as the most threatening global economic crisis for a generation. People think things are sure to get worse because they think the Government is incapable of doing anything to make them better.
Nor is there any hope of early relief. The election is not due till 2010 and Gordon Brown seems determined to see it through to the bitter end, almost regardless of what happens or how his Government decays around him. That means we have potentially got another two years of this. That is why people are so depressed.
There is an interesting parallel here with the last Tory Prime Minister, John Major - who emerged from the grey shadows at the weekend to express his sympathy for the current Prime Minister in this time of trouble.
Even if he was a hopeless leader, Major always came across as a very decent man and one can see why he would empathise with Gordon Brown across the political divide, because he has been there too. For the last three years of his Premiership from 1994 to 1997 the economy was growing strongly - green shoots of recovery, in the vernacular of the time - but he never got any credit for it however hard he tried.
People neither believed nor cared because overwhelmingly they were fed up with the Tories, fed up with the shambles in government, fed up with John Major and desperate for a change to a bright young leader - that Tony Blair. If that sounds familiar, it is.
We have been here before - and it looks as bad now as it did then for the incumbent of No 10.
Reader views (1)
If we ARE talking ourselves into a recession, might the media, and especially the tabloid press, just have something to do with it?
Some might say that the Northern Rock crisis was made much worse by a series of hysterical headlines in certain newspapers which caused long queues of people to form outside branches to withdraw their money, thereby causing a run on the bank.
The tabloids have the power in the way they report stories to undermine confidence in the economy, pushing the housing market further down and throwing more people into negative equity and/or on to the dole.
Is it too much to ask that they stop and think about that next time they are looking for the most sensational spin they can find in reporting stories on the economy.
- Tj, London, 10/06/2008 23:00
Report abuse
