I should start this post with a disclaimer; although I studied a lot of economics, it was never a subject I felt entirely happy with. I think my problems stemmed from a suspicion that the subject was masquerading as a science, that the human factor in financial decisions multiplied millions of times meant that trying to predict how an economy would behave was doomed to failure.
That is not to say, however, that I do not respect those who do their best to interpret economic data and make some sense out of it. For my weekly dose of economic theory, I rely on John Ashcroft’s blog “The Saturday Economist”; I encountered John as a charismatic chair of Pro Manchester SME’s Club hugely successful, informative and enjoyable event about Social Media, and he seemed to have a shrewd idea what he was talking about, and that is good enough for me.
However, for quite an upbeat character (they say opposites attract), John’s latest assessment of the UK economy is extremely pessimistic, and given that economic performance has an inevitable influence on future tax policy, his views seemed to be worth sharing and commenting upon.
The thrust of John’s argument is that UK economic policy is based upon the objectives of growth in exports, output and investment, but in each of these areas actual performance is disappointing:
Although domestic demand grew by 3% in the second quarter of 2012 compared to 2011, this was largely fuelled by an increase in imports, which outstripped that in exports.
This is still 4% below the peak of the first quarter of 2008.
The main contribution to growth in domestic demand was a 5% increase in government spending, compared to 2.2% growth in household expenditure and just 1% growth in investment.
Thus none of the government’s economic objectives are currently being met, but the position is in fact significantly worse when it comes to borrowing. This is up by 25% for the year to date, and forecast to be up by 20% for the year as a whole, threatening to match the record level of deficit ‘achieved’ in 2009-10. Public sector net debt was up by almost 40% compared to 2 years ago, with government spending on social security benefits and debt interest rising by 7%. Altogether an extremely gloomy picture, as noted by a variety of commentators, including the IoD, the CBI, the Chambers of Commerc e and a number of former Monetary Policy Committee members, all of whom have criticised government economic policy in the past couple of weeks.
Of course it is one thing to criticise and another to come up with solutions. The fact remains that the banking crisis and consequent massive spike in government spending have left a lamentable economic legacy. I would never claim to be averse to criticising George Osborne, but I suspect that better economic brains that his would be confounded by the need to come up with a workable solution to the economic ills of this country. Initial comment at the time of the bank bailout suggested that it would take a generation for the UK economy to get over the impact of the cataclysmic events of 2007/2008, and nothing that has happened since will have caused anyone to revise that view.
Nonetheless, we no doubt remain a nation that expects its political leaders to make silk purses out of economic sows’ ears, and is quite prepared to punish them at the polls when they fail to pull off that particular piece of financial alchemy. Of course the success of that strategy (I describe it very charitably) on the part of the electorate is dependent on there being an opposition waiting in the wings with an economic policy that promises something better.
That was clearly not the case in 2010, and no more is it the case, I would suggest, now. Ed Balls fills me with no more confidence than George Osborne as a putative Chancellor (although his surname offers some great punning headline opportunities) and spending our way out of a recession as deep as this carries the spectre of rampant inflation and what Gordon Brown used to refer to as “Tory boom and bust”. In which case what we have at the moment is presumably coalition stagnation , or perhaps coalition contraction is a neater phrase.
Although they would never be prepared to admit it, my pet theory is that politicians of whatever persuasion have not the faintest idea how to extricate the UK economy from the mess that it is in, any more than civil servants or economists do. The economic situation is unprecedented, and our close ties with a Europe wrapped up in the Eurozone crisis (a modern Greek tragedy, if you will) is hardly helpful at this particular point.
Which brings me to the radical alternative perspective on the zero growth economy. Predicated on the plausible theory that the constant drive for economic growth is the principal driver of the widespread damage that we as a world population do to the environment, and also accelerates the consumption of finite scarce resources such as fossil fuels, the logical extension of this theory to the current economic position would be to accept, indeed embrace, the formidable difficulties inherent in seeking to stimulate economic growth, and work instead toward a sustainable economy operating in equilibrium. On that basis, the argument goes, one really does put an end to “boom and bust”, of whatever political origin.
In the absence of any compelling evidence that traditional economic theory offers a way out of our current (apparently) long-term malaise, is this the time to consider the economic sustainability model? Of course it would require a deal of explanation to an electorate reared on generations of politicians who have treated economic growth as political nirvana, but it would offer an opportunity to come to terms with both economic and environmental realities at a time when the alternatives are particularly unappealing. So which politician is going to have the courage to first outline this post-growth economic vision? For whoever it is I suspect that short term criticism awaits, but quite possibly long-term justification. Is zero growth an idea whose time has finally come?