The UK economy grew 0.7% in the 2Q of 2013. That is pretty respectable, albeit only quarter.
One would expect the Tory press to crow, but I was surprised to see the likes of the FT editorial page present the quarterly result as some kind of vindication of Osborne's austerity strategy.
UK GDP remains more than 3 percent *below* its pre-recession peak. That is historically awful performance, even for a balance sheet recession.
Compare to the US, which engaged in some limited amount of stimulus spending. The US economy post-crisis has been very disappointing, but it is still 12 percent *above* the pre-recession peak.
To put raw numbers on that kind of differential, it means that 360 billion US dollars is missing from the UK economy compared to what it would been had it performed like the US economy during the same period. Or about US $5700 for every man, woman and child in the UK.
I can't prove that the austerity was the cause of Britain's poor economic performance. But the claim that the strategy succeeded because five years later the country managed to pull off a single respectable quarter of GDP results is risible, absurd. And the claim that the Keynsians were proved wrong because the UK did not stagnate in perpetuity (also raised in the FT editorial) is asinine, a textbook example of the strawman fallacy.
How much debt would the UK have had to bequeath to future generations (assuming there would have been willing lenders) to get back that $5,700 in lost consumption?
And you and I may understand that the deflationary trap does not work that way, but based on my reading it seems there are plenty of people who think that's exactly how it works. There is value in pointing out to those people the truth.
I also wonder how much of Osborne's success is because he had to give in to critics. He won't say as much but the pace of austerity slowed dramatically and is now, roughly, going at the level Alastair Darling proposed in 2010.
It's just a shame we lost three years with really incompetent cuts (cutting capital spending by around 50% :blink) that hurt the economy and, I suspect, have increased debt more rapidly.
It doesn't look like a vindication of Plan A so much as of Plan B+ :mellow:
I also wonder to what extent this blip in growth is attributable to other major economies not going the route of hard core austerity.
Quote from: crazy canuck on September 11, 2013, 05:30:12 PM
I also wonder to what extent this blip in growth is attributable to other major economies not going the route of hard core austerity.
Yes, I think in part growth in Germany, our largest trading partner, is helping us out.
Quote from: The Minsky Moment on September 11, 2013, 04:52:17 PM
The UK economy grew 0.7% in the 2Q of 2013. That is pretty respectable, albeit only quarter.
One would expect the Tory press to crow, but I was surprised to see the likes of the FT editorial page present the quarterly result as some kind of vindication of Osborne's austerity strategy.
UK GDP remains more than 3 percent *below* its pre-recession peak. That is historically awful performance, even for a balance sheet recession.
Compare to the US, which engaged in some limited amount of stimulus spending. The US economy post-crisis has been very disappointing, but it is still 12 percent *above* the pre-recession peak.
To put raw numbers on that kind of differential, it means that 360 billion US dollars is missing from the UK economy compared to what it would been had it performed like the US economy during the same period. Or about US $5700 for every man, woman and child in the UK.
I can't prove that the austerity was the cause of Britain's poor economic performance. But the claim that the strategy succeeded because five years later the country managed to pull off a single respectable quarter of GDP results is risible, absurd. And the claim that the Keynsians were proved wrong because the UK did not stagnate in perpetuity (also raised in the FT editorial) is asinine, a textbook example of the strawman fallacy.
Thanks for that JR, I think a probably majority of the UK population intuitively know his too.
Leaving aside the London/M25 bubble, It's not pretty from the inside for many.
Quote from: mongers on September 11, 2013, 08:06:17 PM
Yes, I think in part growth in Germany, our largest trading partner, is helping us out.
We're Germany's largest trading partner, but the US is still ours.
I think Germany's our largest trading partner in goods (though them and the US have fluctuated since the 70s I think), but once you add in services then the US is far larger.
In either case they've both had relatively pleasant recoveries.
I thought this was going to be about Ozzy :mad:
Quote from: Josephus on September 11, 2013, 09:27:33 PM
I thought this was going to be about Ozzy :mad:
Joan would be more deserving of the scare quotes.
There is the possibility that permanent damage may have been caused to the UK economy. That is, despite the terrible numbers that JR mentioned, the output gap may not be that large.
Quote from: Richard Hakluyt on September 12, 2013, 02:27:37 AM
There is the possibility that permanent damage may have been caused to the UK economy. That is, despite the terrible numbers that JR mentioned, the output gap may not be that large.
I read somewhere that ~99% of the UK workforce is service based. Which, in my mind, is insane.
Then again, you people built the Reliant Robin.
They can't be that tertiary, can they? There's still coal to be mined.
Quote from: Ideologue on September 12, 2013, 06:20:29 AM
They can't be that tertiary, can they? There's still coal to be mined.
I don't even know if those figures are right. But if I wanted a factory in Europe, I wouldn't pick England.
The service sector is about 80% IIRC and the UK runs a big trading surplus in services. Agriculture is 2% at most but does provide about 2/3 of food requirements. Manufacturing is about 10% and the bulk of the remainder is construction.
It is very important to the UK that our services sector can keep making big profits abroad, without it we would probably only be a middle-income country.
I shall humbly apologize to the English for those bad numbers.
Edit NOT TO THE WELSH THOUGH
Don't forget that teh definition of service industries is reidiculously broad. It includes pharamceuticals, education, health, real estate and transport e.g. if you are building a new road or railway line you are in the service industry.
I hate to defend Osborne but not sure what else he was meant to do.
There has been no austerity in reality. We are running a deficit of about 6%. There is really onl the promise of future austerity and the failure to stimulus spend, an option not really open to the UK in the way that it was to the US. The one huge mistake (made for cynical political reasons and knowing it was a mistake) was to ringfence NHS budgets.
I don't think it's helpful really to compare the UK economy with the US. We are much more exposed to the Eurozone and have much less room for manouevre.
Finally, 0.7% is OK but all the signs are that Q3 will see a much bigger improvement - certainly over 1% and maybe as much as 1.5%. The recent PMIs for the UK are better than any other G20 country.
Quote from: Gups on September 12, 2013, 06:48:12 AM
There has been no austerity in reality. We are running a deficit of about 6%.
That doesn't mean there was no austerity. That just means that the austerity policy - the real cuts in spending - failed get the deficits under control, which is exactly what many economists would predict would happen if you try to cut into a severe recession.
QuoteI don't think it's helpful really to compare the UK economy with the US. We are much more exposed to the Eurozone and have much less room for manouevre.
It is not clear to me why that is a big disadvantage, given that the UK retains its own currency.
One could argue (and the market monetarists probably would argue) that the BOE did not ease as aggressively as the Fed. One could also contrast the shale boom in the US with the decline in North Sea production on the supply side.
That's why I don't think one can state with confidence that the austerity caused the differential. But it is far more dubious to claim that the policy was a success. The evidence of that is non-existent.
Quotebut not sure what else he was meant to do.
He could have said the the top priority was getting the real economy back on track and that once the recovery was in place, he would move firmly to reduce whatever fiscal gap remained. That is what most mainstream economists would have advised. But instead he took his lead from the City.
Quote from: The Minsky Moment on September 12, 2013, 09:22:01 AM
But it is far more dubious to claim that the policy was a success. The evidence of that is non-existent.
The UK still has access to the capital market.
Quote from: Admiral Yi on September 12, 2013, 10:29:52 AM
Quote from: The Minsky Moment on September 12, 2013, 09:22:01 AM
But it is far more dubious to claim that the policy was a success. The evidence of that is non-existent.
The UK still has access to the capital market.
The rate on 3 year gilts is still under 1 percent. The 10 year is at 3 percent which is almost exactly what it was pre-austerity.
I don't think there was any risk whatsoever of possible loss of access to capital markets. To demonstrate otherwise would require extremely compelling proof. Historically, both the UK and the US have been able to sell debt on the markets with much higher debt levels.
What was Britain's debt level when they had to go hat in hand to the IMF?
You're speaking with the benefit of hindsight Joan. The risk of losing access to the capital markets (or of a downgrade) looked much worse in 2010 then it does now. It's possible to argue that so much attention should not have been paid to retaining AAA status as it appears that the markets did little to differentiate in rates when the downgrade took place but there were few saying so at the time.
I don't argue that austerity (or its threat) was a success but I'm not convinced that it had much effect in compressing growth. Capital projects are much harder to get going in the small, NIMBY dominated UK than in the US as the difficulty in getting shale exploration approved is demonstrating.
Quote from: Admiral Yi on September 12, 2013, 10:53:57 AM
What was Britain's debt level when they had to go hat in hand to the IMF?
Dunno, but that was more of a sterling crisis than a debt crisis.
Quote from: Gups on September 12, 2013, 11:12:28 AM
Dunno, but that was more of a sterling crisis than a debt crisis.
Also there was an inflationary spike, which tends to scare off bond buyers. Contrast to 08-10 where the risk was more on the deflationary side.
Quote from: The Minsky Moment on September 12, 2013, 11:46:21 AM
Also there was an inflationary spike, which tends to scare off bond buyers. Contrast to 08-10 where the risk was more on the deflationary side.
This does not really jibe with your previous observation that one of the advantages the UK possessed at the start of the crisis was an independent central bank, and, by implication, the ability to load up debt and then inflate it away.
I agree with Gups point about hindsight. No one knows with certainty what the precise debt level is that will cause investors to flee. Policy makers are working in the dark, and all they know is that there is a cliff somewhere ahead.
Quote from: Gups on September 12, 2013, 11:08:47 AM
You're speaking with the benefit of hindsight Joan. The risk of losing access to the capital markets (or of a downgrade) looked much worse in 2010 then it does now.
Plenty of people thought those risks were insignificant at the time and with reason. Gilt yields were low and stable and were if anything benefitting from the same flight to quality that boosted Treasuries. Even without the Osborne cuts and rhetoric no one was going to confuse the UK with Ireland or Spain, especially since the UK had its own central bank that could widowmaker bond shorts.
QuoteCapital projects are much harder to get going in the small, NIMBY dominated UK than in the US as the difficulty in getting shale exploration approved is demonstrating.
That is true and hence my qualification in the OP. But the UK has advantages as well - political authority is less fragmented - the UK does not have a Tea Party or statutory debt limits and does not have to endure the insane spectacle of periodic brinksmanship over legal default. The UK also doesn't spend as much as the US on a vast security apparatus.