Shriti Vadera doesn’t look so barmy now. Back in January, the controversial Treasury Minister was pilloried for suggesting that “green shoots” of recovery were visible. She was forced to apologise for the “gaffe” by an angry Prime Minister.
The economy was contracting sharply at the time and it continued to shrink in the second quarter. The last thing that people losing their jobs wanted to hear was some former investment banker talking up recovery. But, in retrospect, there were, indeed, more encouraging signs in the real economy. And as for the financial markets, Baroness Vadera’s timing was almost spot on. Share prices bottomed a month later and have now risen almost 20 per cent.
What is more, according to Robert Shiller, the distinguished American economist, Lady Vadera should be congratulated not merely for calling the turn, but also for helping to engineer it.
In his new book, Animal Spirits, Mr Shiller argues that “social epidemics” and feedback loops have a profound impact on economic confidence.
The spread of the term “green shoots” is an example of just such an epidemic. He says that the phrase was “propelled in Britain by Shriti Vadera” and then mutated into a more contagious form after Ben Bernanke, Federal Reserve Chairman, picked it up in March.
Advertisement
He points out that it was a particularly user-friendly term for the global media — needing only a quick translation into brotes verdes, pousses vertes or gr?ne Spr?sslinge — and claims that its spread was part of a powerful feedback loop that boosted confidence, becoming a self-fulfilling prophecy.
The problem is it doesn’t always work. Just ask Norman Lamont.