I have never believed we were going to have anything even remotely like a V-shaped economic recovery. That's not to say that I did not think that we would improve on the position of the UK economy reported in May this year. Given the way that the ONS reported GDP in the first few months of the downturn it was inevitable that there would be some degree of bounceback as soon as schools returned, and that happened.
However, some, including Andy Haldane at the Bank of England, have continued to insist that a V-shaped recovery is likely. Latest data from the ONS, as reported by the Financial Times, suggests otherwise. Take this chart as an example:
As the FT notes:
Business turnover ... started to deteriorate in October, according to a survey run by the Office for National Statistics across nearly 6,000 businesses and published on Thursday. It found that the share of businesses reporting decreased turnover rose in the two weeks to October 4, for the first time, after a steady decline since May.
And as they add:
The deterioration in business turnover could forebode further declines in GDP, which are published with a longer time lag, as “turnover estimates . . . broadly reflect the published UK monthly gross domestic product estimates”, the ONS said.
That there is a link is hardly rocket science. If business suffers as badly as it is at present then it is inevitable that there will be an impact on GDP. The real question is whether or not this is likely to continue. And the evidence is that it will. As the same report in the FT notes, consumer confidence is falling again. This is hardly surprising in the face of a second wave of coronavirus. It is also unsurprising as lockdowns begin. And it is a frank recognition of the meanness of the government's response to the developing situation. All these things, inevitably, create an environment where a downturn is likely, with the failure of the government being one of the biggest contributors to that situation.
It is too early to say for certain whether the recovery has ended. But it is not too early to say that I think that likely. The government's continued message that it was going to withdraw support to people and businesses at the end of this month has cut through: people realise that they are on their own now. That will have a massive behavioural consequence, one of which is that the paradox of thrift will kick in. This paradox is that at just the moment when we need everyone to spend to kickstart recovery the rational individual response to the situation that people face is to save. Only government action can overcome that rational response. But, we have a government that wants to reinforce it.
No wonder that we are going to be in deep economic trouble.
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Did it begin?
I see nothing but chaos out here.
Well, the shopping centers around where I live have nowhere near returned to any kind of normality. Shops, especially smaller ones, still closed, footfall well down, etc. On top of all this there is the stupidity of no deal Brexit to look forward to. Even if there is a deal it won’t be pretty. The only V I can see is of the two finger variety and I don’t mean victory.
Silly for Haldane to rush in and say there’ll be a “V” shaped recovery when clearly it’s a “roller-coaster” ride. He should have paid more attention to Keynes’s “animal spirits!” The classic current example being Trump endlessly reiterating “We’re turning the corner with the coronavirus in the United States.” as coronavirus cases now surging again! Truthfully Haldane I think was doing cheer-leading for Boris Johnson!
The last is true
He still wants to be Governor
Agree that the Haldane’s V shaped recovery is highly unlikely. I was faintly amused when a commentator on this mornings BBC Radio 4 Today programme reported that retail sales for September had gone up by the princely rate of 1.5%, which I assumed was a hint that people should think everything is hunkey dori.
Interesting chart in this Guardian article showing the growth rate under various United States presidents since the Great Depression. Look at the growth rate under Roosevelt especially a huge 9.3%
https://www.theguardian.com/us-news/2020/oct/23/with-10-days-to-go-time-and-history-are-not-on-donald-trumps-side
Here’s John Maynard Keynes 1933 open letter to President Roosevelt published in the New York Times in which he says:-
“… public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money.”
https://economistsview.typepad.com/economistsview/2008/11/keynes-open-let.html
How much more evidence do the leaders of the Conservative and Labour parties need to recognise that careful targetting of the influxing and refluxing of government and private sector bank created money is the key to the UK’s economic recovery from the coronavirus pandemic? And that mindlessly attempting to balance the government’s books as a normative principle of management is stupid beyond belief!
I love that letter…
I think that the answer for Labour lies in the so-called crisis with the IMF in the 70’s and the ‘You can’t spend yourself out of trouble ‘ (or something like that).
I think that this episode may have been the Lefts ‘gravestone’ moment in terms of its perception of how to get things done and I think still hinders their acceptance MMT.
Of course we know now that the then nascent von Hayek’s ‘road to serfdom’ and Friedman’s emphasis on inflation were all terribly over done and plain wrong because they both ideologically negated Government sovereignty and power in making a contribution to the economic well-being of the country (they said Government makes it worse, basically).
I would like to see a book/paper that tells the Labour IMF crisis story again, but now with better updated analysis plus some sort of comparison with MMT today and apply the lessons learnt showing (once again) the art of the possible.
When I finished my MBA in 2014, I was advised that I had the ability to complete a PhD programme. Had I done so, I would have liked to have dome something like I suggest above as a project.
Helen – you are very well read – unless you already know of such a paper or book somewhere that attempts to do this?
But I think it is sorely needed and Labour or some progressive party need to read it as I am sick – as I am sure that many of us here are – of living in a world of the ‘impossible’ on these matters.