Rarely can an economic situation have been so complicated. The newspaper scarelines range from "negative GDP growth could signal further recession" from "NHS reform will prevent efficiencies" to "UK debt hits £1trillion". People take this at face value and assume that we are in a real mess. And of course we are, but not for the obvious reasons. There are several factors that are seemingly ignored and these are taking our eye off the ball.
For example, shrinkage in an inflationary economy is much worse than in a stable one - to remain level the economy ought to grow by an amount equivalent to inflation. But GDP is an appalling measure of the national economy and recession is a scary term, which people rightly associate with sometimes desperate personal straits. 'National debt' is government debt. Because of these factors the absolute depth or otherwise of a recession, the wealth or otherwise of the nation and real scale of our problems cannot be measured by GDP or national debt alone. It is as accurate as saying that the NHS cannot reorganise itself and save money at the same time. It might lack the strategic capability to do so, but businesses on the scale of Ford and IBM have managed it, so it is not impossible.
Which brings me to my main point. Nothing at the moment is quite as it seems. The system of capitalism that we have is miles from being fair or sustainable and the supposedly free market is a free-for-all if you have enough capital. The facts and figures that we see published every day are misleading and politics is too deeply tribal to separate essential actions for the nation from essential actions to ensure re-election.
The UK and its population, people and businesses, were too irresponsible in the 'boom' and the truth is that the bust is worse than we imagine. Total indebtedness in the UK is far worse than £1trillion and far worse than just about all of our neighbours. It gets harder to repay debt as income shrinks and that is why recession will not go away. But surely repaying debt, clearing the decks and providing a basis for future investment is a good thing? It is, but it doesn't feel good because of the flawed measures and statistics that we allow to be published. The only alternatives to this debt repayment, or de-leveraging, are to wait for inflation to erode the real value of the debt or to borrow our way into another bubble and hope that this time real earnings emerge. Neither of these are attractive in an age when we face unaffordable pensions and healthcare and a near-wrecked planet hosting an ever more war-like civilisation.
One of the key recommendations of the Unofficial Big Society Green Paper (£12.99 from www.bigsoocietygreenpaper.org) is that we urgently need better measures of debt, wealth and investment. The Green Paper lays out a clear way to measure the right things and create a national balance sheet. It is essential that this includes the total debt of all of us and estimates our assets. When we invest in things, perhaps Crossrail, this can be added to our assets and depreciated as in any business. When we repay debt we can clearly see it happening and can feel good about it.
My own best guess is that the real economy, the parts that most of the population take part in, has shrunk by as much as 10% pa since 2009, but that the net movements in debt and assets have largely offset this. I do not have access to sufficient detail in the numbers to be able to perform these calculations in detail but you might find it very helpful if one of George's team was to do this. At the moment to most people it feels as if we are spiralling downward. We might be. Some real numbers which evidence the scale of the problem that we face and the progress that we are making could be just what is needed to convince business to begin investing again.
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