Cross-posted at Reports from the Economic Front.
The British economy is a disaster. Oddly enough most analysts find it difficult to explain why.
Actually the reason is quite simple. The British government responded to its own Great Recession by cutting spending and raising taxes. The result, which is anything but mysterious, is that the county remains in deep recession.
Matthew O’Brien, writing in The Atlantic, describes the situation as follows:
…public net investment — things like roads and bridges and schools, and everything else the economy needs to grow — has fallen by half the past three years, and is set to fall even further the next two. It’s the economic equivalent of shooting yourself in both feet, just in case shooting yourself in one doesn’t completely cripple you. Austerity has driven down Britain’s borrowing costs even further, but that’s been due to investors losing faith in its recovery, rather than having more faith in its public finances. Indeed, weak growth has kept deficits from coming down all that much, despite the higher taxes and slower spending. In other words, it’s economic pain for no fiscal gain.
Below is a chart taken from The Atlantic article. It shows that:
Britain’s stagnating economy has left it in worse shape at this point of its recovery than it was during the Great Depression. GDP is still more than 3 percent below its 2008 peak, and it hasn’t done anything to catchup in years. At this pace, there will be no recovery in our time, or any other time.
In other words, while the British economy suffered a deeper decline during the Great Depression period of 1930 to 1934 than to this point in the Great Recession which started in 2008, the economy recovered far more quickly then than now. In fact, it doesn’t seem to be recovering now at all.
Perhaps the most surprising thing about the situation is that political leaders appear determined to stay the course.
Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.
Comments 3
Kinelfire — February 3, 2013
If you know the Conservative Party, it's not surprising at all. The deficit has give them the cover they need for ideological spending cuts. The cover has been pulled back, somewhat, but sadly the other main parties in the UK are either in bed with the Tories or inexplicably the weakest opposition that ever did walk the earth. (Only mild comedic overstatement.)
There's a reason our illustrious Prime Minister is visiting various African countries just now - it diverts attention from what his colleagues are doing to the disabled, chronically ill and working poor of the UK, as well as public services from the NHS to the armed services to the police service to schools.
Yrro Simyarin — February 3, 2013
Yep - the "balanced" approach of spending cuts plus tax increases pretty much kills economies. Cutting spending and leaving taxes lower or the same is pretty much required.
Village Idiot — February 4, 2013
Maybe these are early indications that there won't be a recovery at all this time because we've finally gotten to the point when our imaginary economy is colliding with very real physical limits. Underneath it all, money is just a symbol for extracted and refined (or grown and harvested, etc.) natural resources. And just because there are trillions of dollars on the books here and trillions on the books there doesn't mean that the tangible, physical reality they symbolize actually exists.
If we tried to turn all the money in circulation into physically-tangible objects by buying arable land, forests, oil fields, mines, factories, infrastructure, etc. we'd find we ran out of objects long before we ran out of money. It's like how we can play cards all night long and win a huge pile of chips, but when we try to cash them in they won't do us any good if there's no real, useful currency to exchange them for. Money is a lot like poker chips in that sense; we can play all we want so long as we don't try to exchange them for real money (or tangible resources) and discover that we can't.
That implies to me that society has become (or maybe always has been) one enormous Ponzi scheme and we may have finally reached the inevitable end of that type of game where it all comes crashing down (albeit in slow-motion thanks to various "stimulus packages").
Better buckle up; it's going to be a wild ride! (and for many it already is)
As far as "austerity" measures go, we ain't seen nothin' yet, and they won't be confined to any one country. This time of "stagnation" will soon be remembered as the proverbial good ol' days. And there will be petty partisan bickering about what to do, or even whether or not there's a "problem," all the way to the bitter end. And for what it's worth, I'm being an optimist.