I am optimistic about the economy over the long run (and I emphasise long), and from a purely economic perspective I think that austerity and the political/ economic line taken by this government is the correct one, despite the obvious hardship that lots of people are feeling and are going to feel for a long time. I just don't happen to think we are as far along the road to recovery as you appear to. I appreciate the potential for economies like China, India and Brazil among others to develop demand for what Britain offers and does best, but again, it remains only potential and is still a long way off becoming a reality. At the moment, almost half of UK exports go to the EU which is mired in stagnation and political impasse. For developing economies like the ones you mentioned to begin to take up the slack, lots of new investment is needed, but first we need the WILL to invest, and as I pointed out yesterday, investment rates are cuurrently falling. This implies a lack of confidence in the near- term outlook for both the UK and for the prospects of these economies.
I guess what I am trying to say, and I mean no offence, is that what you seem to have is optimism in the long term but very little else except the idea that there is certainly the potential for things to improve. In the long run, markets will improve and economies will eventually shrug off the burdden of the crisis; this is a given. Where we disagree is that I think the road to real recovery is much, much longer than you do, and additionally that there are going to be problems and set backs that we haven't even begun to consider. My point about interest rate rises yesterday is a good example. Frankly, no- one, not even the government knows what will happen to demand (and therefore growth) when interest rates start rising again in a couple of years. In fact, I would go so far as to say that even the concept of WHEN interest rates might start to rise is a matter for conjecture. We might find that the UK economy will bump along at near- zero growth for a long time because each time a rate rise occurs, growth (driven by consumption) comes to an abrupt halt.
I personally hope that this isn't the case and that in a year or so, we are seeing clear signs of tangible growth, but I have the feeling that we are still going to be arguing this one in three years time, well into the next government.
↧