The Age of Anxiety

Pete Lunn from the ESRI was on BBC Radio 4's Today Programme this morning with Peter Kellner from YouGov discussing the impact of consumer confidence on the real economy (if you listen to it on the BBC website then fast forward to 2:55 as it's the last item on the show).

Pete made the point that it isn't just the 'quantity' of uncertainty that is adversely affecting consumer confidence right now, it's the 'quality' as well (my distinction, not his). In other words, it's one thing to worry about something directly affecting your life like a job promotion, but qualitatively something else to worry about a thing you cannot control like the prospects of a global recession. And right now we live in an age of anxiety. Make that increasing anxiety.

Kellner, on the other hand, leans more towards the 'conditions determine consciousness' school of explanation. He argues that it is the trend in house prices - and the poor prospects for same in the UK - that are the source of the emotional anxiety affecting British consumers right now.

However, the always interesting Chris Dillow has an entirely different take on the 'confidence drives the economy' issue. He argues that it is the sentiment of senior business leaders that drives the economic cycle in the short run - not consumer sentiment.  His proof? Economists have a better record of forecasting consumer spending growth than they do investment growth - suggesting that the latter is subject to more extreme and therefore more 'emotional' factors than generally realised.

Which does raise an interesting question. Would it be more useful to track the emotional well-being of business leaders rather than the general public as a guide to our economic prospects?