Regardless of what Osborne says, the UK will go through a ‘lost decade’

10:40 am - May 13th 2013

by Duncan Weldon    

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The past two weeks have provided some good and some bad news on the UK economy. On the one hand GDP data for Q1 2013 was better than expected.

Whilst on the other GDP per capita figures suggested that the hole we are currently in is much bigger than previously thought.

GDP per capita measures economic output per person. In many ways this is the most sensible way to measure growth over the medium term and the best way to compare growth across nations.

As the IMF mission arrives in the UK to assess our economic performance, the TUC have used IMF data to look at GDP per capita over the advanced economies.

As can be seen in the table below the UK’s performance is abysmal.

GDP per capita table

Over the decade 2008 to 2017 the UK will experience, according to the most recent IMF forecasts, GDP per capita growth of 0.0%.

In real terms GDP per capita was £23,777.32p in 2008; by 2017 it will have reached just £23,768.25p. In terms of growth per head the UK is set to have its own ‘lost decade’.

The data really tells us three things.

First that the UK experienced an especially severe recession in 2008/09, second that the recovery has been historically weak and drawn out and thirdly that in terms of the ‘global race’ that the government is so keen to talk about, we are doing especially badly. Amongst the G7 only Italy is expected to underperform the UK.

If there is a global race, then we are certainly losing.

The Resolution Foundation has calculated that median real wages are set to be well below 2008 levels in 2017. In fact real median wages are set to be below 1999 levels as late as 2017.

We face a lost decade of growth and two lost decades of living standards, we are losing the global race, deficit reduction is widely off track and yet the Chancellor still refuses to change course.

A longer version is at Touchstone blog

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About the author
Duncan is a regular contributor. He has worked as an economist at the Bank of England, in fund management and at the Labour Party. He is a Senior Policy Officer at the TUC’s Economic and Social Affairs Department.
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Story Filed Under: Blog ,Economy ,Westminster

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Reader comments

The UK will go through many more lost decades, thanks to wasting all its efforts on europhobia, celebrating past glory and football.

In the news today, the CBI is announcing new grounds for business optimism:

Confidence is improving across most UK businesses, according to the latest business surveys, although manufacturers are less optimistic.

Well yea, no one can undo the damage labour inflicted.

4. Planeshift

“Well yea, no one can undo the damage labour inflicted.”

Totally. All those sub-prime houses in the US were the devastating result of New Labour. However I’ve never been able to tell whether CDOs were the creation of Ed Balls or Alastair Darling, Hansard hasn’t quite been as helpful as usual.

“Save in boom spend in bust” VS “Lets go bust” ~ But hey its not as though a goverment has to operate like we exist in a global economy, there need not be preperation for anything especially when one individual in our own goverment ENDS BOOM AND BUST. just blame the yanks eh.

Onbe: “Well yea, no one can undo the damage labour inflicted.”

In the FT, Bob Diamond, head of Barclays Bank, was reported as saying in a BBC Today interview on 4 November 2011 that the Banks must accept responsibility for what went wrong. In the interview – which I listened to – he repeatedly said that banks must work towards a situation where banks could be allowed to fail without taxpayer support and without causing systemic instability if they did fail: Barclays chief rediscovers remorse.

The failing of Labour was in allowing a house-price bubble to continue to inflate despite warnings from Charles Goodhart and Roger Bootle going back to 2002/03.

The trouble was that house-price bubbles are very popular with home owners and the Conservatives at the time were repeatedly calling for more deregulation and cutting red-tape so the house-price bubble got larger and larger as a consequence.

Bankers seeking bonuses were responsible for chasing all those opportunities to push subprime mortgages — Britain wasn’t the only country to suffer from this blight. America, Ireland and Spain were also blighted by house-price bubbles created by credit booms. Labour can’t be reasonably blamed for all that.

So another lost decade then. Following on from the decade Labour lost, when they had good circumstances and the opportunity to reform the nation.

Why anyone (outside the public sector) would think that Ed Miliband won’t lose another decade, fumbling around with Balls, is beyond me…

John Smith: “Following on from the decade Labour lost, when they had good circumstances and the opportunity to reform the nation.”

Really? As Adolf wrote in Mein Kampf (1925), “since the great masses of the people in the very bottom of their hearts tend to be corrupted rather than consciously and purposely evil, and that, therefore, in view of the primitive simplicity of their minds, they more easily fall victim to a big lie than to a little one, since they themselves lie in little things, but would be ashamed of lies that were too big.”

Try instead this alternative assessment by the Centre for Economic Performance at the LSE: UK Economic Performance Since 1997:

“The UK?s economic performance was strong during the period of Labour government,1997-2010. GDP per capita grew faster than in France, Germany, Italy, Japan and the US. Productivity growth – GDP per hour – was second only to the US. And improvements in UK employment rates were actually better than in the US.”

9. Planeshift

“Why anyone (outside the public sector) would think that Ed Miliband won’t lose another decade, fumbling around with Balls, is beyond me”

Because Jon Cruddas is in charge of the policy – the only senior labour member who realised labour had a problem before the rest of them did, and is making the right noises about a more intelligent state.

Yes Bob B, really. What was the economic performance from 1997 based on? Credit, the housing market and a boom in the financial sector. It was unsustainable and the results have been clear, would you actually say Labour strategies helped develop a sound economic structure?
Or they drove us down a dead end economically? Not asking too many questions as the tax receipts rolled in and in turn threw the money at the public sector.
Of course Labour are not solely responsible, but even the most ardent Labourite can’t deny some fault with the last Labour Government, as our friend Planeshift points out in his comment.
And instantly quoting Hitler; really…?

John Smith: “It was unsustainable and the results have been clear, would you actually say Labour strategies helped develop a sound economic structure?”

And the Conservatives in opposition kept calling for more and more deregulation and for cutting Red Tape. They even had a shadow minister for Deregulation and Competitiveness – John Redwood.

Time and again I’ve said the New Labour Government failed to respond to warnings about the inflating house-price bubble from Charles Goodhart and Roger Bootle going back to 2002/03. But house-price bubbles are very popular with home owners and there was a famous paper by top-flight Oxford academics, delivered at a meeting of the Royal Economic Society at Nottingham Uni in 2006, which claimed there was no house-price bubble. Compare this from The Economist in March 2002:

“Over the 12 months to February average house prices in America rose by 9%, and those in Britain by 15%. Adjusting for inflation, this is the biggest real increase on record in America and the biggest in Britain since 1988.”

12. gastro george

I don’t think anybody with any sense would defend New Labour’s handling of the economy. It was, after all, just Tory-lite. The question is whether Miliband and Balls can get us out of the neo-liberal straitjacket. That’s an open question.

13. Richard T

So Bob B, you apparently accept that the growth was based on a bubble, yet still want credit for “strong performance” and 99.9% of any culpability shifted to anyone but the government of the time. Banks, the opposition, voters, homeowners, you name it. Truly fatuous. “Allowing a house-price bubble” indeed, they were cheerleading it.

Richard T

I suggested in many threads ago that the house-price bubble was due to bank credit credit, easy, high loan-to-value mortgages and light-touch financial regulation. But that wasn’t unique to Britain as we can see from the charts in that piece in The Economist from March 2002 linked @11. From a column in Monday’s FT by Edward Luce: Stuck in the mud – America’s fiscal trench lines:

“When historians look back on the meltdown of 2008 they will conclude that the country that triggered it – the US – was among the least bad in its continuing monetary and in its initial fiscal response.”

The relatively high GDP per capita growth rates, as compared with peer-group countries in W Europe, were surely due to buoyant aggregate demand, just as current low growth rates are due to depressed aggregate demand because public spending cuts by the coalition government haven’t been replaced by compensating increases in consumer spending, business investment and Britain’s current account of international payments. Because of government policy, it will take years to get real GDP back to where it was in the first quarter of 2008. Meanwhile, average real living standards are back at the levels of 2003.

Since I’ve readily admitted to macroeconomic theory which sees national economies as driven in the short-term by aggregate demand, this shouldn’t be new or surprising.

15. Tremor Mendous

Lost decade = Depression

It’s just been renamed to fool the morons of the country that we’re not in a depression.

The only reason they get away with it is because nowadays they can ‘fake’ GDP by printing money.

Also the term ‘double dip’ is another moronic attempt to deceive by the media.

Those people who bother to study economic history know that the great depression was “a series of four downturns” – and coincidently they did not call it a depression until they had come out of it!

What a shame people are such suckers – in about 3 years time they will be angry and asking where it all went wrong.

Ignorance is the key here – blind and wilful ignorance.

16. Tremor Mendous

Reading some of the comments I see that there are still die hards who want to blame labour for the entire mess.

Well leaving aside these people think economic history began in 1997 – there is a more important question at hand.

The main causes of the crisis were
a) The greedy banks
b) The lack of regulation for those greedy banks
c) The greedy people who borrowed from the greedy banks
d) The housing bubble blown by the greedy people who borrowed from the banks

So what were the first actions and priorities of the coalition?

Benefit cuts
Abu Qatada
AV vote
Public sector cuts

Infact they actively opposed tighter regulation (from the EU) on the banks, they brought down interest rates to ‘encourage lending’ and their latest wheeze is to blow an even bigger housing bubble (help to buy scheme)

So if the argument that it’s Labours fault the crash came – then surely it’s also true the reason we have not had a recovery is all the Coalitions fault.

…but die hard Tories seem to miss this blindingly obvious point.

17. Mary Coulthard

Lost Decade? There is actually no escape from this slump which can only get worse. Colossal monopoly profits, the bail out of the banks, the debasement of the currency by QE, tax hikes, wage freezes and austerity are all combining in each of the individual nations to gradually create a world depression from which there will be no escape. A stock exchange bubble is giving the impression of some sort of recovery but that will explode soon enough. The corporates and billionaires are investing their profits and QE money in a speculative bubble as there is nothing profitable to invest it in which hasn’t already been invested in but the monopoly profits themselves are coming out of the pockets of the people who are supposed to be buying the goods the stock exchange companies produce. Yes it is true, and far from a little ironic, profit, or profiteering, is killing the economy.

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