Reading the British press online this morning shows that large parts of it still do not really get the chief point about the current economic situation. There are discussions about how Britain is in recession, as shown by the horror of a 0.5 per cent contraction of the economy in the last quarter and so on. If that is what is at stake then really a great deal of fuss is being made about not a great deal.
No one has ever succeeded in eliminating the business cycle and if what we are going through is a cyclical downturn then that is no great surprise and the economy will simply emerge out at the other end. No need to change business as usual.
Thus a group of monetarist economists opine in their letter to the Sunday Telegraph that: 'Occasional slowdowns are natural and necessary features of a market economy'.
The Sunday Times noted: 'Economists said that while Friday’s gloomy third-quarter figures for gross domestic product, showing a drop of 0.5%, had hit the pound, there could be a silver lining in them. "The figures didn’t surprise me,” said Gerard Lyons, head of research at Standard Chartered. “The recession will be significant and it will last for four quarters. But the size of the fall we’ve already seen will spark policymakers into action."' He, however, is not quoted as saying what action is required.
Misunderstandings are not confined to the political right. The Observer for example, to judge by its front page headline, considers that there is no story going on which is bigger than a potentially illegal £1 million donation by a member of the Rothschild family to the Tory Party, while its lead business story is 'America joins UK on brink of recession'. The Guardian's editorial on Saturday read: 'senior figures at the Bank of England admit that a "deep and severe recession" looks increasingly likely, while others talk about a recession that will last for a whole year, with the economy only really recovering by 2011...No one can seriously argue that this will not be a recession; the question is whether it will be a Labour recession.'
With all due respect to the Guardian no, that is not the really decisive question. The really key question is whether there will be a recession or a deep economic collapse - a depression of the type not seen since the 1930s. SEB has explained why from the point of view of economic fundamentals it should be possible to confine the situation to a very severe and unpleasant recession. But that depends on their being extremely firm and decisive action to prevent something worse developing.
One person who does get the point however is Roger Bootle. The Sunday Telegraph notes of his views on the Monetary Policy Committee of the Bank of England that: 'Roger Bootle, managing director of Capital Economics, said: "I don't understand why they are not contemplating a one or two percentage point cut in interest rates. They are very quick to raise borrowing costs but far less daring when it comes to cutting them.
'"It's a failure of vision by many of the members. Either they think they are in a university seminar or that this is merely a minor slowdown. In fact, they're facing something which might approach the Great Depression.
"They need to be thinking are more boldly about policy. If they aren't careful, the members of [the MPC] will go down as some of the worst monetary policy-makers in history."
Quite. Bootle is spot on. It is why a minimum one percent cut in interest rates is required immediately. And it is why Vince Cable was quite right to say publicly that if the Bank of England is not prepared to take decisive action, in a very short term period, to radically reduce interest rates its independence should be taken away.