Tag Archives: recession

GDP: gross delusional propaganda

Ideology determines which economic indicators we’re told to pay attention to.

So the great recession, depression or slump is apparently over, GDP having returned to the level from which it crashed in 2008. That’s enough to satisfy most commentators, even if there are a few curmudgeons like me who point out that GDP per head remains well down on 2008. On average, we’re still more than 5% worse off and 5% less productive than before the crash – there are just more of us than there were six years ago.

Most economists, of course, have long been satisfied. It only takes a single quarter of minuscule growth (0.1% will do, although two quarters of negative growth are required before economists will admit a recession has started) for them to declare a recession over and move on to proselytising about the sunlit uplands which are always just around the corner. It doesn’t matter how many people lost their jobs or how many are still on the dole. It doesn’t matter how much people’s incomes and standards of living have fallen. It doesn’t matter how many firms have gone bust or how much production has been lost. One little tiny uptick in this GDP thingy and everything’s tickety-boo.

This is like a doctor declaring a seriously ill patient completely recovered just because they wake up one morning not feeling any worse.

At first, this just looks like another startling disconnect between the economics profession and the real world the rest of us live and work in. But this is so blatant, it feels more like deliberate manipulation.

Mainstream economists can’t deny that recessions sometimes happen, but want to make them seem as short and as rare as possible. That way they can preserve the illusion that recessions are just blips. The fact that the real-world effects of a recession – basically hardship in various forms – persists long after economists have declared the recession over (and in some cases might never go away) doesn’t matter to them. The recession is over because they say it is and anyone who says different, as usual, is tarred with the “economically illiterate” brush.

As the graph below shows, since the free-marketeers regained control of policy in the UK in 1979, we’ve actually spent quite a long time in recession – at least 13 out of 35 years. That’s quite a big blip.

GDP levels and months since start of recession - sometimes it takes ages to get back to where we were before.
Source: NIESR/FT

Economic concepts and the indicators we’re told are important are ideologically determined. Saying that the recession ended in the fourth quarter of 2009 (or even that it’s all over now, when most people are still feeling its effects) isn’t a statement of scientific fact, it’s a piece of propaganda.

Most mainstream economists are free-market ideologues and will define concepts and choose indicators that make free-market capitalism look better than it really is, however meaningless and remote from reality they are. They are our equivalent to the Soviet officials of yesteryear, solemnly intoning over the factory tannoy endless series of meaningless statistics about the production of tractors or brown shoes.

This is why there is no economic definition of a depression. Mainstream economics just cannot admit that such a thing is possible. The free-market economy is supposed to be self-correcting, quickly adjusting to the blip of recession and returning to growth without any intervention from governments. To admit that Keynes was right all along and the economy can get stuck in a rut, would bring the whole façade crashing down. So the long periods of slow growth or no growth we all know are possible (and have just experienced) are just defined out of existence.

Of course, politicians often connive in this manipulation, because it tends to make their stewardship of economy look better than it really is. This is probably why we use an inflation measure that with every revision (inevitably downward) gets further and further away from measuring anything like the “cost of living” (the CPI is called the government’s “preferred” measure, so what do you expect it to do?). And why we have employment statistics that count being stuck at home on a zero-hours contract waiting for the phone to ring as being just as much “employment” as a real (full-time, permanent) job.

But GDP has become the Daddy of all economic indicators, a sort of catch-all barometer for economic health and a yardstick for comparing economic performance between governments and countries. But it’s a lousy measure of our economic welfare, even in purely material terms.

GDP – or Gross Domestic Product – is an accounting estimate (nothing more) of the market value of all goods and services produced in the country. The fact that GDP is about to be revised significantly to include drug dealing and prostitution (hardly new industries) shows just how arbitrary and abstract a measure it is. It takes no account of population growth, sustainability, debt or how income is distributed among the population. So GDP can be rising quite fast while most people’s standards of living are falling – which is more or less what’s happening now. If we want a simple measure of material welfare as experienced by most people, we’d be better off focusing on median household incomes or even better, median household disposable income (i.e after taxes). That would tell an entirely different story, as the graph below for the US for the last fifty years clearly shows.

GDP per head and median family incomes in the US 1960-2010 (1960=100)

Median family incomes in the US have fallen way behind GDP per head since the late 1970s.
Source: Economic Policy Institute/World Bank

But it would also mean economists having to focus on policies and ideas that address the welfare and lives of ordinary people instead of providing ideological cover for a plutocratic elite whose experience of economic life is completely detached from that of their fellow citizens. Mainstream economists seem to have little or no interest in doing that.

Mission accomplished, George?

Osborne’s recovery is just like Darling’s – only slower, weaker and later.

George Osborne’s crowing over the economic recovery reminded me of George W Bush, strutting around on the USS Abraham Lincoln celebrating the ‘end’ of the Iraq War on 1 May 2003. As Bush spoke, a huge banner behind him read ‘Mission Accomplished’. Shortly afterwards, all hell broke loose. The war wasn’t over after all. It’s arguable if it’s even over now.

GeorgeOsborne2012

Like Bush, Osborne is in a tearing hurry to declare victory and move on. He doesn’t want you to think too hard or too long about what victory looks like, in case you conclude that it doesn’t look much like this.

It’s not just that two quarters of growth at 0.3% and 0.7% is hardly setting the Thames on fire. It’s not just that this is the slowest recovery for a zillion years (you can take your pick how long, but we could go with the broadly pro-Osborne IEA, who say it’s the slowest for 170 years), making Osborne a less effective recovery Chancellor than Alistair Darling, Norman Lamont, Geoffrey Howe, Denis Healey, Tony Barber or even Neville Bloody Chamberlain). And it’s not just that falling living standards, spiralling house prices and frozen wages are making this recovery feel almost as bad as the disease.

There’s also Osborne’s own view on what constitutes economic recovery. You see, this is our second attempt to recover from the great slump of 2008. Our first recovery – far more promising than this one – was cancelled just as it was getting going by no other than Gideon George Osborne himself.

When Osborne moved into Number 11, the economy had grown by 0.5%, 0.4% and 1.0% in the preceding three quarters. But Osborne said that was no good. He threw out Alistair Darling’s more considered strategy – a successful strategy – and reached for his austerity blunderbuss. The economy collapsed back into recession, then drifted sideways for two years. Living standards, especially for working people, plunged.

Osborne said the Darling recovery was unsustainable because government debt was too high. He said we were on the road to becoming Greece, although how a growing economy and a level of national debt on a par with Germany’s merited comparison with Greece was, and remains, beyond me. He said the economy was too reliant on a house price ‘bubble’ and households were borrowing too much. Darling’s recovery wasn’t really a recovery at all and we’d have to start all over again.

Three years later, the economy may finally be crawling out from under the rock Osborne dropped on it. But the national debt will be £533bn higher at the next election than at the last. Osborne’s recovery has barely begun and there’s already talk of a ‘house price bubble’ in many areas. And with stagnant or falling wages, rising house prices can only be accommodated by ever-higher borrowing.

If Darling’s recovery wasn’t real, then neither is Osborne’s. And it’s three years late.

Talking therapy

The left needs to dispel Europe’s political depression before it can tackle the economic gloom.
Spain's Mortgage Victims Platform holds protests outside ministers's homes, but also help families fight evictions at local level.
Los Indignados: Spain’s Mortgage Victims Platform holds protests outside ministers’s homes, but also help families fight evictions at local level.

Europe seems to be in the grip of a political depression every bit as deep as the economic one. Spinoza wrote that we feel depressed when we are cut off from our power to act. Faced with the economic depression (let’s call it what it is), Europeans seems to be suffering just such a collapse in will brought about by utter hopelessness. The British pollster Peter Kellner said recently that politicians need to find ‘a narrative to dispel the gloom’. This is exactly what ‘talking therapies’ aim to do for people suffering from depression. But if it’s hard to find that narrative for an individual, it’s harder still for a whole nation or even a whole civilisation.

One reason the European left hasn’t done very well out of the global economic crisis is that many voters don’t believe politicians can to do anything at all to end the slump, or even to protect the gains working people have made in the last one hundred years or so. The left runs on hope and there isn’t much hope about.

Kellner was commenting on a recent poll in Britain which found that most voters didn’t believe there was anything politicians could do to restore living standards to pre-crash levels anytime soon. Even among Labour party voters, only 56% thought there was anything to be done. The same fatalism seems to lie behind the vertiginous collapse in support for François Hollande’s socialist government in France. Most French people seem to believe that the President’s widely derided ‘toolbox’ for dealing with the crisis is empty, and probably always was (of course there is a small but vocal minority who claim he is the willing stooge of international capitalism, but in France there always is). But the mainstream centre-right UMP (Sarkozy’s party) remains in disarray and the main beneficiary has been Marine Le Pen’s Front National.

Note: the Front National not the Front de Gauche. The surge in support for so-called ‘anti-politics’ parties – the FN, UKIP in Britain, Beppe Grillo’s Five Star movement in Italy and Golden Dawn in Greece – is largely confined to those on the right. On the ‘alternative’ left, nothing stirs. But if this is rage, it feels like an impotent rage – one of Spinoza’s ‘sad passions’. I doubt even supporters of these parties have much real confidence in them as potential governments. Grillo certainly made an electoral breakthrough, but then ran away from the responsibilities of power. And how many people who will vote for UKIP in Thursday’s local elections in the UK can put their hand on their heart and say that a lot more Thatcherism and flouncing out of the EU will deliver jobs and growth? Really?

So, if I cannot solve my problems and they cannot solve them for me, perhaps we can solve our problems together. This idea used to be called ‘solidarity’ (fraternité in France – one of the three founding principles of the 1789 revolution, and the most overlooked). But solidarity has been largely slung out of the left’s toolbox. The traditional channels for expressing solidarity and applying collective pressure for change were mostly closed off even before the crisis began: street protests are often seen as a waste of time (democratic governments make it a virility test not to give in to such protests); trade unions are weak and often discredited, and their traditional weapon – strikes – are almost useless in a depression; and there are no credible revolutionary movements to force governments into offering radical but democratic change.

If there is a ray of hope to pierce the gloom it might come from the example of the indignados movement in Spain, which mixes local grass-roots activism – for example, helping impoverished families fight evictions – with imaginative direct action protests, such as noisy demonstrations outside ministers’ homes. These kinds of social movements, which might also include co-operatives, credit unions and the like – have more practical appeal than fuzzy movements like Occupy and pack more political punch than charities. They offer collective action and individual help with specific problems. There is a ‘narrative’ that most people can relate to.

The conventional left has always been a bit sniffy about anything too ‘grass roots’ or smacking of ‘self-help’, often preferring to operate at the systemic or theoretical level (or even sometimes to not operate at all). But we should remember this is exactly how trade unions and organised left got started in Europe in the first place.