As we hear yet another budget on how fiscal reform generates growth and how national debt will be the death of us I thought Chancellor Hammond should be reminded of the role of optimism in our economy.
”Old age isn't so bad when you consider the alternative.” was a Dave Allen quip.
People say I am a serial entrepreneur and an off the scale optimist. Pessimism does not cut the mustard in my book and I have spent 60 years creating resilience to it.
Why on earth would I do that? Well... it makes me feel great with the side benefit being a pretty nice standard of living.
How does pessimism impact GDP?
Well in 2014 the pound was 13% up on the US Dollar and the smart money was on a continued rise. The BBC reported this really bad news and found the owner of a gasket manufacturer who said that they were in danger of losing business. The article expanded to say that in total 14 FTSE 100 firms, which make an estimated 80% of their revenues overseas, issued profit warnings in the first quarter of the year.
Reading this made me think of Dad’s army… "we’re doomed, I tell you doomed".
However at the end of 2016 the pound was, and still is, really weak. The BBC found the owner of a widget manufacturer making parts for the NHS who said that the weak pound; some 25% below the 2014 levels was…well bad news as well. Increased costs would have to be passed on to the NHS. The BBC expanded on this story and found someone who said that increased costs to the NHS could be as much as £900m.
Reading this made me think of Dad’s army… "we’re doomed, I tell you doomed".
So rain, hail or shine… it seems to be bad news
Why does all that matter?
Well a few years ago I stopped watching breakfast television because I had watched a feature in a similar vein to the falling or rising pound. It was about the car industry and guess what…it was bad news. The result of a one-person survey was that it was not a good time to buy a new car. So 20,000 fewer resilient to pessimism people watching TV that morning decided that was sound advice and they delayed their £25,000 purchase. That took half a billion pounds out of the automotive sector in one swift minute of the morning news. Wow.
This was probably a self -fulfilling prophecy and the following month there was news that car manufacturers were laying people off…and guess what…it was worse because the exchange rate was…well neither up nor down but this exchange rate stagnation compounded the problem we were told…it needed to move.
Crikey surely not up because the gasket man would be laying people off and the FTSE 100 would have more profit warnings than presidential tweets.
Hopefully not down because the widget man would be part of a £900m NHS problem meaning we would be 3 years in A&E and only there because it took us 4 years to see a doctor.
“Optimism isn’t that bad when I consider the alternative”… thanks for that Dave.
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