The Guardian Just Loves The Economic Doom And Gloom

Apparently the wheels are already coming off Boris Johnson’s cart. Tax collections are falling because the economy is shrinking and it’s only Tuesday of Week Zero! Tee Hee, eh?

The scope for significant tax cuts in the new government’s budget has been reduced after gloomier predictions for the public finances from the Treasury watchdog showed higher levels of public borrowing and a deterioration in the British economy.

The Office for Budget Responsibility (OBR) warned that government borrowing was on course to be about £20bn higher than previously expected in each year to 2023-24, dramatically cutting the government’s room for manoeuvre after Boris Johnson’s election victory.

Closely watched business surveys suggested the British economy is on the brink of its second quarterly contraction this year after the private sector recorded its worst downturn in three years in December.

It takes them a long, long, time to get to admitting that this is a problem already largely solved:

…business activity slumped before the election, against a background of intense political uncertainty, a lack of clarity….linked to a pause in decision-making and subdued new orders for firms as they awaited the outcome of the vote…..Brexit-related aversion to investment among companies

Etc, etc. The fact that we’re not getting Grandpa Death nicking everything plus Brexit getting done means that we’ve solved that problem, right?

As I’ve been pointing out for some months now uncertainty is a pernicious killer of economies and thus market prices. It’s as JM Keynes said: Business investment is the great variable component of GDP. Whether investment takes place is driven by the “animal spirits” of businessmen. When they face uncertainty – not just probability but genuine non-knowledge of the future – they won’t invest. This is what tips an economy into recession, is what drives the entire business cycle.

The UK has had more than three years of Brexit uncertainty: whether it actually happen at all, let alone what the actual terms would be. Then, more recently, as it became obvious that there had to be an election there was: Well, who is going to win it? Would it be a Labour Party committed to another round of socialism or not?

We saw the effects of this time and again in the economic statistics recently.

Quite so. And when uncertainty is removed, well, we’ve removed the cause of the slowdown, haven’t we?