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With the winter Olympics coming soon, here is a prediction we can have confidence in, Britain won’t do very well. But there is a sport we are good at. We are like the All Blacks, the Brazilian Football team, and the all time Australian cricket XI rolled into one. We are simply outstanding at knocking ourselves.

So Britain is set to follow Greece. We are paying the price for the way Mrs Thatcher devastated British industry. We should all emigrate, and leave Britain to the immigrants. At least, that’s what you could be forgiven for concluding if you were to read some of the press rattling around at the moment.

The thing is, we may be good at this particular sport, but we are lousy at picking out our good points. As for the criticism aimed at Mrs T, while it is true that she did much that was unkind, she also left a legacy for Britain, which will provide our way forward.

Britain is not set to go the way of Greece. The economic rival that is more likely to go down that route is France. The single biggest danger to our recovery lies with us, and it’s our skill at the sport known as Britain knocking that provides the biggest threat to our future.

Did you know more people died in car crashes as an indirect result of 9/11 than on the fateful day itself. The reasoning goes like this. After the terrible events of that day, people concluded air travel wasn’t safe, so they took to their cars. Travel by car is more dangerous that travel by plane. The resulting increase in fatal car accidents was responsible for more deaths than was caused directly by the terrorist attacks.

Did you know, that research in the US reveals that more loto tickets are sold at given stores in the week after a wining ticket was bought at these store. (According to research from J Guryan and MS Kearney.)

It is a human trait that psychologists call the ‘recency bias.’ We tend to be unduly influenced by recent events. And that can be a big problem. For example, in the wake of the credit crunch we react against risk, and suck dynamism out of the economy.

Or alternatively, we draw a conclusion from two years worth of experience, and ignore two decades of data.

So the UK is going through a rough period. So too, is the rest of the developed world. According to the IMF, next year the UK is likely to enjoy the second best growth rate among the G7. According to Goldman Sachs, the UK could even out perform the rest of the G7 this year. The larger eurozone economies face even deeper problems than the UK.

During the last few days, some economists have turned their attention towards France. A fifth of France’s public debt is due to be re-financed this year.

Okay, the UK’s public debt is comparable to French debt. Net debt in the two countries is likely to peak at a similar level. So why isn’t the UK equally vulnerable?

There are two keys reasons. Reason one, the UK is not in the Euro. This was covered here yesterday. See Is this the end of the euro? Or just credit crunch mark II?

The second reason is cultural and has its roots with Margaret Thatcher.

“Greek unions threaten austerity moves,” ran the headline in the Times yesterday. The Greeks are not happy. Not since Prince Paris eloped with Helen of Sparta, have the Greeks been so up in arms. Strikes seem inevitable, riots will follow. The medicine Greece needs to take won’t taste nice. Social unrest will make it doubly difficult to implement. Greece has got a disease. Back in the 1970s, it was called the ‘British Disease.’

Back then, austerity was the watch word. From Heath, Wilson and on to Callaghan, wage freezes were the policy. Spending cuts were essential. In 1977 James Callaghan said “we used to believe you could spend, spend your way out of recession. I tell you, in all candour, that option no longer exists.”

But back then, people didn’t believe it. Half a century of Keynesian economics had bred the view that the government could fix things. That the key to get an economy growing was getting spending up. Job loses were wasteful; better to subsidise a firm than allow redundancies, with resulting rises in unemployment benefit.

That policy can work in the short term. In can work during an economic crisis, such as the one we are experiencing now, but only for a short while.

Before Thatcher, the UK had seen three decades of demand management. The result was an economy that was afraid of change; unions who saw technology and productivity increases as a threat to jobs, and a work force which believed in the right to work, regardless of whether the jobs created did anything useful.

Mrs T forced change. Suddenly the profit motive became more important. Some people saw this as move towards greed. But the truth is profit is the reward for providing customers what they want. Back in the 1970s customer service was awful. Industry was ran on the basis of creating jobs, not for producing goods and services people wanted to buy.

The result of this 30 years of  Keynesian economics was that we eventually had less jobs. We ended up with rising inflation and unemployment simultaneously. The UK was a nervous wreck of an economy.

Today, labour is more flexible than even before. Average earnings rose at an annual rate of just 0.9 per cent in November. According to the Labour Research Department, pay freezes make up a higher proportion of all wage deals than at any other time during the recession.

Labour – that’s labour as the in the work force, not the political party – is responding to the recession in a way that was just inconceivable 30 years ago. And in a way that is inconceivable across most of Europe today.

The flexible labour market means new industries will emerge. The UK will find goods and services it can produce that are competitive in a world dominated by China and India. Germany, France, Italy et al, will, by contrast, face the almost impossible challenge of competing against the new economic forces of the world while hanging on to their old way of doing things.

On top of that, the UK’s demographic challenge is not as serious a threat as it is across most of Europe. Thanks to immigration and the rising of the retirement age for women to 65, and the fact that we are all going to be retiring at an older age soon, the UK is the only large advanced economy which is likely to see its dependency ratio fall over the next few years.

That does not mean the UK’s challenges are not serious. But the biggest threat to the UK is that the media, economists and electorate, charged by their ‘recency bias,’ react against all the things that can propel the UK forward.