Philip Delves-Broughton

The despair bubble

We’re in a gloom boom – it may be time to invest in some optimism

Economists, we should all have learned by now, are mostly quacks. They practise neither a science nor an art but a bad game of darts. Boozed up on shoddy theory and meaningless statistics, they wobble to the oche of public life, hurl an arrow at the backboard, then blame the flight, the lighting, anything but their own incompetence, when it falls to the floor.

So why listen? Why bother with their endless fainting fits over the slightest flicker in the numbers? When they try to tally the Office of National Statistics’ claim that the British economy shrank by 0.7 per cent in the three months to June with the CBI’s manufacturing survey, which shows cautious optimism, or the obvious advantages of shrinking the deficit with the effect of the eurozone crisis on exports, they are quickly lost in a macroeconomic fog. It is easier at that point to cry wolf than keep trying to make sense of it all.

The despair becomes addictive and self-fulfilling. As George Soros would say, it obeys the laws of reflexivity. The first time it appears, it may be justified. But then everyone starts to pile on. The economists claim to know what they are talking about, and we make the fatal mistake of believing them. Before you know it we are in a despair ­bubble.

There is only so much a government can do to stoke an economy, and the coalition has largely done it. Keeping Britain’s AAA credit rating will be regarded by historians as a significant achievement. Ask the Spanish and Italians if you doubt that credit ratings matter. It is the central piece of the government’s kitchen-table economics. Debts need to be reduced and the chequebook balanced before you can invest again for growth.

While other countries remain in an economic tailspin, the Treasury can now use the national balance sheet to guarantee private-sector loans and promote investment.

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