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Spending out of a recession – it’s not party political, it’s common sense
Posted by Claire Spencer (@thedancingflea)
Wednesday, 28th October 2009
No-one is (or should be) particularly thrilled that the UK is still in recession, regardless of their political affiliation.
Looking at the figures, I am still hopeful of recovery in the final quarter – the decline of 0.4 percent is less than the 0.6 percent decline seen in Q2 2009, business confidence is on the increase...and it’s Christmas, which certainly won’t hurt, although that certainly won’t be enough to drive growth in Q1 2010. But things are looking good in the global market – initial public offerings are occurring once more, and the private equity and venture capital industry has been shaken out of its blue funk by taking new approaches to investing – less leverage for private equity, more mature investments for venture capitalists. This will have an effect – after all, if we have learnt anything from the financial crisis, it is that we are more interconnected than anyone realised. We still have a problem though, and clearly, the three main political parties have very different ideas on how we will ultimately pull ourselves out of recession – Labour by spending now, cutting later, Conservatives by cutting now and Lib Dems by “progressive austerity” – the most poetic of the three plans, to be sure.
But throughout this crisis, it has become worrying clear that the label “recession” and the economic concept to which it refers have become divorced – otherwise we wouldn’t be having this increasingly circular argument about whether you can spend out of a recession. You can only spend out of a recession. Consequently, when Roger Bootle, an economist who writes for the Telegraph wrote this simple, but excellent piece, I breathed a sigh of relief. “A recession is a situation in which output, spending and income are all below normal or below potential. If output and income are to go up then someone must spend more. There is simply no other way. As a matter of logic. The only sensible debate is about who should spend more, on what, and how they can be persuaded to do so.”
So, are those who propose cutting ignorant of what a recession actually is? Or are they pretending to for the sake of presenting a different slant to those they wish to distinguish themselves from? I don’t know – frankly, it gives me no pleasure to think that a potential Chancellor does not understand what a recession is, just as it gave me no pleasure when Gordon Brown said that we had eliminated boom and bust. I don’t like people with power making bad decisions – even if I get to say “I told you so”.
Mr Bootle outlines four groups of “spenders” in his article – consumers, companies, foreign visitors and the government. Considering the weak pound, it was widely thought that tourists would do a lot of our spending – but considering the declines in the services sector, this clearly did not happen to the anticipated extent. Of course, financial services are more of an issue than the health of the hospitality sector – our reliance on them is probably the single most important reason that we are still in recession.
I am not saying that there is one way out of recession and into growth. Ultimately though, we have to be reading from the same economics textbook, or, as Mr Bootle says, we will have to learn to love the recession.
