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Friday, 24 July 2009

Are we there yet?

Apparently not. UK Economic output fell by 0.8 per cent quarter-on-quarter in the three months to June, after a 2.4 per cent decline in the first quarter, according to the Office for National Statistics’ “flash” first estimate of GDP. This was a much bigger drop than economists had expected.

As you will see from the graph below, although lower than the fall last quarter, it is higher than the correspondin figure last year, which means we have now had the biggest year on year drop (5.6%) since records began. So no green shoots yet.

But then I don’t really have much faith in economists who often seem unable to see the wood from the trees, and the same goes for economics journalists, including Sam Brittan of the FT, probably the oldest teenage scribbler in town. In his latest article in the other pink paper, Mr Brittan pours cold water on the size of the budget deficit.

Never mind that the debt ratio was far higher not only after and between the two world wars, but in the supposedly virtuous mid-Victorian period. Never mind the historian Lord Macaulay’s mockery of the debt obsession. This is clearly far from what the Labour government intended when it came to office in 1997 full of talk of “prudence for a purpose”.

Which misses the point. Immediately after the two world wars the country like other world powers was saddled with large debts from the war and had a smaller peacetime economy due to the disruption of the war, but we saw the economy grow rapidly thereafter.

In the mid 19th century Britain (the country, not the man) enjoyed a fast rate of economic growth. Government borrowing was high to fund the development of overseas possessions which was repaid through access to low cost labour and vast natural resources from the Empire.

We are living in a different age now. We are a middle sized power in a post-industrial age with few competitive advantages, having lived through a long period of relative stability. To drive the country so badly into debt and leave our children to pick up the ill is reckless in the extreme. iven the high proportion of state spending, the more apropriate comparison is not with 19th or early 20th century Bitain, but with 1980's Eastern Europe.

To expect the Chinese to keep the salaries of their civil servants low and yet continue to finance the cost of our own, is naive at best.


Demetrius said...

Brittan seems to have forgotten what is was like for those of us in the lower classes in the 1940's and for a while after. Limited food, limited clothing, limited everything, high cost products, and forced conscription. The problem was government debt and all the other liabilities we had, does he really think that there is no real problem?

Alex said...

Symptomatic of a wider issue with economists who think we are just living in a series of economic cycles and that we will bounce back eventually, not realising that we are probably living in a period of profound changes in world economic power, incipient shortages of raw materials.

On the one hand politicians talk about a global village, but if there is a vast welfare system operating in only one corner of the village funded by local taxes, the residents of that area will see their neighbourhood decline.