The UK economy did not actually overheat during the last boom
As global stock markets remain volatile, should British businesses be preparing for the worst?
It was no ordinary recession in 2008/09. And it has been no ordinary recovery either.
You see, in good old fashioned economic cycles the economy would overheat; then once it had obviously gone too far it would take a dive; then it would bounce back again.
Interest rates (or possibly fiscal policy) would go up and down to stimulate or dampen spending and activity at each relevant stage of the cycle. It was all rather linear and simple.
This time round it all seems rather complicated. The economy didn't in fact overheat very much in the boom years, yet it took an enormous dive in the bust and is now struggling to get on its feet again, despite the authorities throwing most of their fiscal and monetary weaponry at the problem.
Governments, central banks, businesses and households are dealing with a far more knotty configuration of economic factors than they are used to.
You don't need me to remind you that the financial markets have been telling us how worried they are about it all. They're right to be concerned.
The problems this time round go back to the unsustainable debts that were allowed to accumulate during the years running up to 2007. There are many debts that borrowers can't afford to re-pay and we are struggling to decide who will bear the consequent pain. We've passed the losses from banks to taxpayers, to other taxpayers, but we still haven't shed them all.
Real economy
When they're understandably getting jumpy in the City, a good thing to do is to get out of the office for a few days and visit the real economy.
EVANOMICS
Listen again to Evan Davis' three reports on the challenges facing the UK economy:
For one thing, out there you can get a different perspective on the ways this economic cycle differs from those we've experienced in the past.
And anyway, it does no harm to leave the infectious psychology of the financial markets behind, to get some fresh air and to remind oneself that even when market participants are running around like headless chickens, real chickens are still laying eggs.
Economic life out there is less volatile than you imagine when gazing at the FTSE all day.
With a view to doing just that and looking at three different and unusual features of this economic cycle, I've just spent three days around the country talking to people who run or work in non-financial activities from a farmer to a crockery manufacturer to the chief executive of a foundry.
The first feature of this economic cycle that interests me is the presence of relatively high global commodity prices.
We normally expect the prices of oil, food or raw materials to follow the ups and downs of the global economy. And they did conform to this pattern to a degree in 2008, tumbling as the recession struck.
But for us in the west, the behaviour of commodities has not been normal or helpful. Prices rose far more in the years since 2009 than our anaemic recovery would have merited.
'Hoarding' workers
The reason is simply that some other parts of the world have been growing fast and for the first time these other parts are significant in setting prices.
To make things worse, even with all the gloomy predictions of global recession circling around, the latest market mayhem has only caused a relatively modest drop in prices. Why? Because speculators are so fearful right now that many of them would rather hoard commodities than money.
As high commodity prices act like a great tax on the UK economy, they're making the job of stimulating growth more difficult than usual.
David Cameron's major problem is securing growth in the British economy
The second unusual feature of this cycle in Britain is a more helpful one. It is the behaviour of the labour market. Normally unemployment rises and falls with the cycle, and again it has conformed to that pattern to some degree.
But this time, the rise in unemployment is smaller than you would have thought given the stagnant state of the economy. Out in the real economy I found employers who have attempted to hoard workers (especially skilled ones) and have thus put more effort than usual into keeping wage costs down, rather than shedding staff.
What has been striking is the willingness of workers to comply with their bosses' austerity plans. Four-day weeks, enforced holidays, pay freezes. It's all made life hard for the British worker but it has at least ensured there are more British workers than their might otherwise be.
The third complicating feature of this period in our economic history is the most challenging: the need for our economy to re-orient itself. Our economic didn't just boom and bust, it got out of balance.
It is obvious that in the years when we were borrowing and spending too much, we were also importing unsustainably.
Now we need to unwind all of that and "rebalance" our economy away from domestic consumption towards exports. And preferably exports to the fast-growing emerging economies, not just other cash-strapped problem-struck economies of the west.
The good news is that, out in the real economy, it is easy to find evidence that rebalancing is underway and to identify companies which export to China. None better encapsulates the rebalancing we need, for example, than Jaguar Land Rover.
But the bad news is that we clearly do not have enough Jaguar Land Rovers to build a whole recovery, and our rebalancing is now in danger of petering out as our most important markets are in Europe and the US which are getting into trouble.
In fact, in many respects we face an economic catch-22: it is hard to stimulate growth without first rebalancing because any other growth is unsustainable and unaffordable.
But it is hard to rebalance without first getting some growth in the economy, because we won't pay down debts, achieve financial stability, invest in new export capacity or take risks on new products if the economy is wallowing in recession.
So, in summary, out there, away from the financial markets, the economy sometimes looks better than it does in the city; people aren't yet panicking. We haven't quite arrived at the famous double dip.
But you can't take much heart from that. We may well need more than encouraging signs and fresh air to get us comfortably through the next couple of years.
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