Economic Recovery

There are now signs that the economy is reshaping itself and recovering at the same time. House prices are continuing to fall. People and businesses are borrowing less. Mortgages are tough. Housing benefit caps will bear down on rents. The state is shrinking. Manufacturing is increasing at the fastest rate for fifteen years and creating jobs apace. All of this is good news, not just the last item.

This is where some economists run into difficulties. The idea that you can spend and borrow your way out of financial difficulty may have had some resonance in the past, but is deeply flawed today. This is because the staggering levels of  both personal and national debt, even relatively and adjusted for inflation, are way beyond any concept of anything that went before. Just as you can eat you way back to health after illness, it will not work if the illness is caused by overeating. 

This time the solution lies in working our way out of trouble in real jobs which contribute to wealth creation and employment and are not financed by the taxpayer. Businesses must raise enough capital to function without bank loans for day to day cash flow. People must earn the money to pay for what they want to buy. Inflated assets, especially housing, must fall back to their true worth. This will be tough, not least because at almost every level the culture assumes the only way froward is to borrow, whereas not all that long ago it was thought undesirable and to some even a sin.

The people sense this. This is good because a great re-shaping of our economic culture cannot be directed by government. There are now clear signs that something positive is happening. It is just a start. There is a very long way to go.