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<TD><SPAN class=SellTitle>The stupid economy</SPAN></TD></TR>
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<DIV><FONT color=#000000 size=2>Mick Hume</FONT></DIV>
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<TD class=body_p_intro>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.<BR class=NetscapeDummy><BR
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<TD class=body_p>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. <BR class=NetscapeDummy><BR
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<TD class=body_p>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.<BR class=NetscapeDummy><BR class=NetscapeDummy></TD></TR>
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<TD class=body_p>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.<BR class=NetscapeDummy><BR
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<TD class=body_p>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 <I
xmlns:script = urn:my-script-blocks>Wall Street Journal</I> 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.<BR class=NetscapeDummy><BR
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<TD class=body_p>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. <BR class=NetscapeDummy><BR
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<TD class=body_p>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.<BR
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<TD class=body_p>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.
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<TD class=body_p>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'.<BR
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<TD class=body_p>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?<BR
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<TD class=body_p><B xmlns:script = urn:my-script-blocks>Mick
Hume</B> is editor of <I xmlns:script =
urn:my-script-blocks>spiked</I><BR
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