The best commentary on the latest UK GDP figures that I have seen comes from Geoff Tily at the TUC. As he says:
Today 2016 Q4 GDP figures showed growth of 0.6 %, and the economy continuing to survive the Brexit vote.
But we should not lose the wood for the trees. The economy is still bearing serious scars of the financial crisis and the austerity which followed.
Today's figures also give us an annual figure for GDP growth in 2016 of 2%.
Taking a longer-term perspective, this is a poor outcome, continuing a run of poor outcomes since the financial crisis. Average growth since 2010 (the first year of recovery after the crisis) has been just 2% a year.
As he then notes:
The chart below shows annual growth figures from 1831, with averages across continuous expansions — defined here as runs of years broken by two consecutive negative annual growth figures. On this longer-term perspective, the 2% average since the financial crisis is the lowest episode on record (just) for a continuous expansion, and by far the lowest since the war. In the pre-crisis decades (1981-2007) growth averaged 2.8% a year. The closest previous episode of growth as low as that seen in the current episode was over the 1880s-1910s when growth averaged 2.1% pa. (Though pre-war figures should be approached with caution.)
Real GDP growth and averages across expansions and contractions, 1831-2016
So, let's be blunt about te fact that economically we have nothing to celebrate. And this matters.
Reduced growth is cumulative in effect and means the economy (and incomes) are greatly smaller than expected when the coalition took office.
We can estimate the impact of this by projecting GDP figures forwards in cash terms from 2009. The economy has increased in size from £1,520bn in 2009 to an estimated figure of £1,930bn in 2016 (see end for method). But according to the OBR's original projection of growth of the economy in cash terms it should have grown to £2,150bn.
The shortfall is therefore £220bn — equivalent to nearly two NHS budgets.
GDP in cash terms: OBR expectation v outturn, £bn
And of course a much weaker economy means a much lower tax take. With government revenues accounting for around 36% of the economy, 36% of 220bn is £79bn. This corresponds very closely to the shortfall in public borrowing against original expectations of £84.8bn that the OBR have recently reported for 2015-16.
As Geoff concludes:
We are still operating under the delusion that cutting spending is somehow good for the economy. It isn't. It damages the economy and the labour market, and so also damages taxes which means it doesn't even repair the public finances. It doesn't seem the greatest leap of logic to the idea that the opposite might be true. That government spending strengthens the economy, increases revenues and so supports the public finances.
I wholeheartedly agree.
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These days politicians spend more time “in make-up” and on “photo-ops” than they do on the numbers.
Poor indeed – and it looks just as bad when you look at the per capita figures:
http://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG
[Interestingly those figures took a permanent 1% point drop in the seventies (2.8% to 1.8% average pre- and post-1973 OPEC oil-price shock) – monetarism, EEC membership, both or neither I wonder…]
The era 1945-75 was actually the exception and in many ways looks like a catch up to where we would have been if the two world wars and great depression had not happened. However, the catch up was greatly facilitated by a strong helping hand from the state, classic Kaleckian economics. Kalecki even predicted how it would end, with the elite forcing a policy change that would further their own interests over those of the majority.
I think we could a lot better now if we recycled (taxed) the return on capital/rent and invested it in people (education and health and housing) and innovation (e.g. sustainability and energy efficiency).
That is indeed what we have to do
I am working on a new project to think about that
Indeed, the fact that 2% growth is considered good is the new normal.
That said, I’m not sure we should be cheerleading for GDP anyway. Sure, it’s a good roughcut measure for employment etc., but should we not be more interested in what is being achieved in the economy rather than how much crap we are consuming?
I dealt with this in The Courageous State
Excellent work from Geoff, on this Richard, and t hanks for alerting me to it (something to include in teaching material at the least).
Incidentally, I notice in the sidebar to your blogs the tweet from George Monbiot that he’s finally lost faith in Corbyn. I could say we told you so, but won’t. 😉
Indeed
I have to say that of all the Tories I have had meddling with my life and making it harder, George Osbourne is without peer in terms of how much I hate and resent this creature.
He makes Nero look like a great statesman.
In more enlightened times he would have been prosecuted for his cruelty and his destruction of Government and national wealth.
Had he been a CEO of a company he would have been let go by the board.
To paraphrase Chrissie Hyde – had he been in the SS in ’43 he would have been arrested for cruelty.
When I found out that he was being paid to be make speeches about his ideas I thought that this was the final insult and that maybe there is no such thing as justice in the world at the moment.
I’m trying to understand the growth rates implied in Geoff’s article.
Actual increase 2009 GDP 1,520 => 2016 GDP 1,930 in cash terms
Projected increase 2009 GDP 1,520 => 2016 GDP 2,150 in cash terms
The increase from 1,520 to 1,930 over 7 years requires a compounded growth of 3.6%
The increase from 1,520 to 2,150 over 7 years requires a compounded growth of 5.1%
The difference in average growth between the two figures is 1.5% (i.e. average growth of 3.5% rather and 2%) which seems rather high unless this is due to the rate on inflation between the actual and projected being different (cash figures not accounting for inflation), which would of course makes the 220bn figure nonsensical.
If the difference between the two growth rates isn’t due to inflation, then what level of investment in the economy would be required to achieve and extra sustained 1.5% growth, and how much of the extra GDP would be required to service that new debt (unless we did it via QE of course – say an extra 140 – 200 billion of QE between 2009-2016)
I suggest asking Geoff
I am sure he has answers