Mick Hume
There should not really be an economic recession in the USA or the UK this year. But if the stupid doom-mongers keep predicting a recession, they could end up talking themselves into one anyway.
In the recent balance sheet of profit and loss, the biggest loss has been any sense of proportion about the state of the economy. Yesterday in spiked-IT, Phil Mullan examined the overblown hype about the booming New Economy. Gloominess about the coming bust is equally exaggerated.
The share prices of hi-tech stocks might have experienced wild upwards and downwards swings in recent times, but underlying economic trends on both sides of the Atlantic have been pretty static. The US economy has averaged around four percent annual growth over the past five years. The UK economy has grown by an average of about three percent a year since the last recession in the early 1990s.
This relative lack of dynamism suggests that the USA and the UK have largely wasted an opportunity to transform their economies through fully integrating the new IT sectors. But the sluggish trends in economic growth also mean that there is little justification for a dramatic slump. What does not go up very far or fast need not come down too hard.
The unjustifiably dark predictions of recession reveal a major loss of capitalist confidence. The problem is more one of perceptions than of economic fundamentals. As the Wall Street Journal pointed out this week, the experts can no longer even agree on how to define the meaning of 'recession', never mind agreeing on whether America has entered one yet; but they all agree that it is 'the economic buzzword' of the day.
In this case, however, buzzwords can hurt. The depressed mood among economists and business executives is already having an impact on the real economy - as reflected in the reluctance to invest in viable enterprises, especially in the IT/internet sector.
After the big falls in hi-tech share prices over the past few months, the new wisdom appears to be that IT is a bad risk. But the facts don't quite bear that out. Around a third of all new companies in Britain are expected to go bust within 18 months of launch; the proportion of dot.com start-ups which have failed is significantly lower than that. American venture capitalists normally lose up to two-thirds of the money they gamble on new enterprises; by contrast, at worst they are expected to lose around 10 percent of the $100 billion they have so far invested in IT.
The reluctance to invest more in IT today reflects a culture of fear and risk-aversion rather than a sober assessment of economic prospects. The market normally accepts that new sectors will not return fast profits, and need credit to establish themselves. But in the anxious, short-termist markets of today, these rules seem to have been partially suspended. The failure to fund sensible business plans risks starving the potential success stories of tomorrow of the investment they need to survive today.
UK prime minister Tony Blair now boasts that New Labour is 'the party of economic competence'. What he means is that New Labour will leave the economy in the hands of the Treasury officials and the Bank of England. Blair's do-nothing government has benefited from the years of steady economic drift, amassing a decent surplus in tax revenues without trying (or spending) very hard. New Labour now sees claiming the credit for economic stability as the key to being re-elected this year; it thinks the Democrats lost the White House despite the 'Bill Clinton boom' because they forgot Clinton's mantra: 'It's the economy, stupid'.
The result is that, at a time when some bold vision is called for, Britain is run by a government of would-be bank managers - cautious, conservative and devoid of imagination, who would rather watch the potential benefits of the IT sector be squandered than say anything that might upset the fidgety financial markets. So who's stupid about the economy now?
Mick Hume is editor of spiked
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