As a consistent critic of the Coalition’s economic strategy - and that of the preceding government too - it might suit my blogging career if the nation's prospects continued to point south. Whilst some may secretly wish that they do, allowing them to adhere to their chosen mantra, I am open to admitting when I'm wrong - all the more so if it turned out that the policy I'd criticised turned out to achieve the aims I espouse. So with a number of economic indicators taking a turn for the better of late, perhaps I was wrong to say that the government's economic policy is misguided. Perhaps I, and so many economic experts who actually know their onions, were all wrong to recommend a change of course in fiscal, monetary and structural policies. Perhaps we should've given the Coalition's central economic thesis - that deficit reduction pursued mainly through spending cuts would lead to economy recovery - longer to prove itself correct.
Perhaps.
Perhaps, on the other hand, one or two swallows in the form of modest GDP growth and improved business confidence do not make a summer of bright economic prospects. Maybe the bright spots remain set against an ever-darkening backdrop of as-yet-unresolved economic failings - at best masking the latter, at worst distracting us from dealing with them.
It is right and proper we should deal with the apparent improvements in economic indicators first. Of course 0.6% growth in GDP last quarter is welcome - not least as it would appear at first glance that the recovery is broad, with all sectors of the economy showing at least some growth. Following growth of 0.3% in the previous quarter, it is even more welcome - and some would argue that with statistical corrections erasing the UK's double-dip recession at the turn of the year, 2013 is looking like a good year for growth. In fact, some would argue that with a remarkable rise in business confidence surveys, now is the time to celebrate the UK's economic prospects.
I want to agree. I want to believe that we are heading out of the woods. But I simply cannot - and not only because we need far more dynamic growth to recover from such a catastrophic depression, nor that we've been here before, with several quarters flattering to deceive since the crash, or that real output per capita remains depressed (see chart), or that a broader view of even the more positive recent data is far less encouraging, as Frances Coppola comments.To explain why, it's worth reviewing what economic success looks like.
To some, largely but not exclusively on the right of the political spectrum, the success of economic policy is judged by three metrics - inflation, GDP growth and budget deficits. To me, a successful economic strategy gives us more than these necessary but insufficient conditions. It gives us higher living standards, particularly for the less-well-off; less inequality; innovation backed by an Entrepreneurial State that helps us meet tomorrow's challenges; and a more sustainable way for us to make our living without compromising future generations' ability to meet their needs. So in that context, should we celebrate the seemingly brighter news just yet? I'm afraid that question merits an entry into John Rentoul's pantheon of Questions To Which The Answer Is No. Or rather, QTWTAI Not As Things Stand, or QTWTAI Certainly Not Yet.
Recall that we aren't interested in output growth not matter how it's achieved - to repeat the mistakes of Labour and Tory governments of the past, and ignore the composition of said growth and the distribution of fruits from it, would be to invite a repetition of the crash of 2007/8 and subsequent depression.
With this in mind, several concerns arise. Much of the current 'recovery' remains based on consumer spending, which as Duncan Weldon points out is increasing despite an unprecedented drop in the value of earned income - as we dip into our savings to fund current spending. Absent a rise in household income - unlikely given current trends and to which we can add the alarming use of zero-hours contracts - reduced household savings cannot underpin a sustainable recovery. It can only lead us back to pre-crash levels of personal debt, and the financial cliff-edge we found ourselves on at that time.
Further, with government policy now explicitly favouring a house price bubble, there is a real risk that rising service sector output, on the back of a wealth effect based on the same unstable pillars as before, masks the deepening crisis in living standards that no amount of statistical trickery can hide. Inequality might be lower today than in many previous years, but with the Coalition's benefits changes and the effect of underemployment since the crash yet to take hold, it is more than likely to rise in coming years - bringing with it the same damage to most people's capacity to live decent lives that preceded, perhaps even caused, the financial crash.
All this is to say nothing about the banking system, which in the absence of real challengers to large, unwieldy incumbents is still not fit for purpose.
In the interests of brevity I'll save other concerns for future posts - suffice to say that from a regional, sectoral and other perspectives, the economy is hardly being rebalanced. It is clear that the economic crisis we are living through is more than a crisis of capitalism, it is also an opportunity to right some of the long-standing problems that beset the economy, from the depressed demand and fiscal pressure brought by a dysfunctional banking system and low wages, to the inadequate investment in innovation and infrastructure without which prosperity cannot be sustainable or equitable.
So no, let's not celebrate prematurely - let's keep in mind we are far from fulfilling the aims of a successful economy, and continue to press for polices that bring such an economy about.
To some, largely but not exclusively on the right of the political spectrum, the success of economic policy is judged by three metrics - inflation, GDP growth and budget deficits. To me, a successful economic strategy gives us more than these necessary but insufficient conditions. It gives us higher living standards, particularly for the less-well-off; less inequality; innovation backed by an Entrepreneurial State that helps us meet tomorrow's challenges; and a more sustainable way for us to make our living without compromising future generations' ability to meet their needs. So in that context, should we celebrate the seemingly brighter news just yet? I'm afraid that question merits an entry into John Rentoul's pantheon of Questions To Which The Answer Is No. Or rather, QTWTAI Not As Things Stand, or QTWTAI Certainly Not Yet.
Recall that we aren't interested in output growth not matter how it's achieved - to repeat the mistakes of Labour and Tory governments of the past, and ignore the composition of said growth and the distribution of fruits from it, would be to invite a repetition of the crash of 2007/8 and subsequent depression.
With this in mind, several concerns arise. Much of the current 'recovery' remains based on consumer spending, which as Duncan Weldon points out is increasing despite an unprecedented drop in the value of earned income - as we dip into our savings to fund current spending. Absent a rise in household income - unlikely given current trends and to which we can add the alarming use of zero-hours contracts - reduced household savings cannot underpin a sustainable recovery. It can only lead us back to pre-crash levels of personal debt, and the financial cliff-edge we found ourselves on at that time.
Further, with government policy now explicitly favouring a house price bubble, there is a real risk that rising service sector output, on the back of a wealth effect based on the same unstable pillars as before, masks the deepening crisis in living standards that no amount of statistical trickery can hide. Inequality might be lower today than in many previous years, but with the Coalition's benefits changes and the effect of underemployment since the crash yet to take hold, it is more than likely to rise in coming years - bringing with it the same damage to most people's capacity to live decent lives that preceded, perhaps even caused, the financial crash.
All this is to say nothing about the banking system, which in the absence of real challengers to large, unwieldy incumbents is still not fit for purpose.
In the interests of brevity I'll save other concerns for future posts - suffice to say that from a regional, sectoral and other perspectives, the economy is hardly being rebalanced. It is clear that the economic crisis we are living through is more than a crisis of capitalism, it is also an opportunity to right some of the long-standing problems that beset the economy, from the depressed demand and fiscal pressure brought by a dysfunctional banking system and low wages, to the inadequate investment in innovation and infrastructure without which prosperity cannot be sustainable or equitable.
So no, let's not celebrate prematurely - let's keep in mind we are far from fulfilling the aims of a successful economy, and continue to press for polices that bring such an economy about.