We’ve just had the revisions for the latest set of GDP figures for the UK and they show that the UK GDP is rising strongly, at 0.5% (note that UK figures are reported as a quarterly number, while US figures are an annual rate from that quarter) per capita. But also that those per capita figures are still below pre-crisis levels. Thus the actual lifestyle enjoyed by us all is still a shade below what it was nearly a decade ago. In one sense this is highly unusual: it’s perhaps the first period of modern times, absent a bloody war, that this has been true. However, on another basis it’s really rather normal. For the recovery from a finance led recession is more difficult and takes longer than recovery from a normal recession.
Here’s the nuts and bolts of the GDP figures:
The Conservative party received a boost from an upward revision in the UK’s GDP estimate for 2014 today. But another release from the Office for National Statistics suggests British households are not necessarily getting richer.
The ONS’s latest report on “economic wellbeing” in Britain shows that in the fourth quarter of last year, GDP per head rose by 0.5 per cent compared to the previous three months but it is still a sizeable 1.2 per cent below pre-financial crisis levels.
What’s more, net national disposable income per head – the income available to UK residents – has remained broadly flat since the first quarter of 2012 and remains 5.1 per cent below pre-crisis levels, the ONS said.
To some extent you can take your pick of those different measures. Certainly, the political parties will all be emphasising different ones.
However, we’ve also just had this from the US Fed:
Figure 3 confirms several well-known results and provides some new ones. First, recessions associated with financial crises are deeper and last longer, no matter the era.
There’s a huge public policy importance to this. Which is that various people are already shouting about how the recent recession and slow recovery show that Keynes was right, that Keynes is irrelevant, that monetary policy can do it all, that instead we should spend, spend, spend and so on. And before we can decide between these alternative explanations we’ve really got to make one thing very clear. This recent recession was not like those of 1992, 1976, the one we all worried about at the end of the dotcom boom (and add in other dates for other economies). This recession came about because of a financial crisis. As the Fed is saying there this was always going to be a hard and arduous, long, process to get back to normal. Thus we cannot compare whatever policies were used this time with the success or failure of other policies in other recessions that did not come about from financial crises. We can only compare it to those recessions that did come about from financial crises.
And to be honest we’ve not really had all that many of them, not in modern times where we’ve got detailed information. 1929 comes to mind, certainly, but not many others. And that’s where the discussion of public policy all gets very complicated. Because the UK experience after 1929 tells is that expansionary austerity does indeed work and it works very well. We came off the gold standard and devalued, cut government spending and were back to normal in a couple of years. Entirely the opposite lesson the Keynesians would have us take from the current mess.
This doesn’t mean that therefore the Keynesians, or the austerians, are correct. The point is that recovery from financial crisis induced recessions is different. Thus we must make sure that we only look at recovery from financial crisis induced recessions when comparing policy effectiveness. And sadly, I see absolutely no sign anywhere of anyone making this crucial distinction: certainly not in politics currently.
My latest book is “23 Things We Are Telling You About Capitalism” At Amazon or Amazon UK. A critical (highly critical) re-appraisal of Ha Joon Chang’s “23 Things They Don’t Tell You About Capitalism”.