The way people are talking about the economy on the radio and television is woefully disconnected with reality. BBC interviewers imagine that they are being probing and valiant by demanding to know if ministers are going to help this or that group of people who are in difficulty.
The interviewers talk as though the Government were a parent handing out sweets and either being generous or mean to little children. Unfortunately, ministers go along with this approach. Alok Sharma, the Business Secretary, yesterday said that the Government was going to “do all we can to put our arms around” people in difficulty. But this parent-and-children way of looking at the economy is highly misleading.
We are in a major economic crisis and certain things are bound to happen that are serious and will impact us all. The Government cannot and therefore will not continue doling out special gifts and this narrative is distracting us from what is really going on. We need to face the facts of where we are now in order to create the best chances of a good economic recovery.
The national debt is over 100 per cent of GDP. Two decades ago Gordon Brown said that a prudent level was a maximum of 40 per cent. The budget deficit this year will be around 15 per cent of GDP, whereas the European Union has long insisted that budget deficits should be no more than 3 per cent.
These figures are worse than the conditions that gave rise to the 2008 economic downturn. Government debt will have to be controlled or else no one will want to lend to us. A new period of austerity is inevitable and necessary.
Unemployment is forecast by the Office for Budget Responsibility to rise by two million compared with last year. Most of these people will be urgently seeking new jobs, but there will be relatively few on offer.
The reality of this supply and demand means that real wages will have to fall. That is what happens in a flexible, successful economy. It is tough, but unavoidable if people are to get new jobs again. The minimum wage should be frozen or reduced to encourage this process.
Businesses that are not truly sustainable are closing down and will continue to do so. This is an inevitable period of adjustment. New businesses will open in their place in due course, but it will take some time. No amount of government spending programmes will solve it. Actors who are out of work are not going to become construction workers overnight.
Taxes will rise. The Government has finally allowed this unwelcome truth to get into the public domain. And these taxes will not just be imposed on the rich. There are not enough wealthy people around and if taxes are increased by much on them, the income received by the Treasury will fall, not rise.
No, taxes are already too high, but they will be increased on the whole population. Big revenue producers such as income tax and VAT will have to be tapped.
Government spending will have to be cut back after this year’s splurge. The fact that the Government has recommitted itself to HS2 means that cuts elsewhere will have to be all the tougher. So some public sector jobs will have to go, too.
And there is a good chance that inflation will go up. The money supply has been rising at a much faster rate than in recent years. Unless something changes, this will bring inflation in its wake, even if it takes a couple of years.
Inflation will devalue the fixed incomes of the retired, so even they are likely to suffer in this downturn. The vast majority of us will be hit in one way or another.
There will be some who are still hoping that somehow we can “get away with it” – that the economy will bounce back. They hope that this will correct the budget deficit, bring down unemployment and all will be well again.
This is highly unlikely. The government deficit is currently being supported by purchases of government bonds by the Bank of England. This cannot go on indefinitely. And when it stops, interest rates will rise. One way or another, the reckoning will come.
François Hollande, when he was standing in the 2012 French presidential election, declared that he “rejected austerity”. People voted for him and he got in.
But of course he could not “reject austerity”, any more than King Canute could tell the tide to stop coming in. The growth of the French economy fell to zero the next year and unemployment rose to 10 per cent, where it remained for the next three years.
We need to start accepting the reality of the situation we are in. Interviewers and ministers should move on to a different narrative. The questions should be “when are you going to reduce the rate of money growth?”; “what are you doing to reduce the barriers to new businesses?”; and “how are you going to cut the budget deficit?”