UK economic miracle much worse than great depression
In the political propaganda game George Osborne has won praise from a leading international think-tank for his “remarkable” stewardship of the economy.
Angel Gurria, head of the Organisation for Economic Co-operation and Development (OECD) said the Chancellor deserved a “pat on the back” – even echoing a Tory slogan by hailing the government’s “long-term economic plan”.
The OECD achievement record for predicting economic performance is dire. Since before the 2008 financial crisis and ever since, the OECD projections have repeatedly over-estimated growth, failing to anticipate the extent of the slowdown and later the weak pace of the recovery–’errors’ as they are commonly known amongst economists.
At the same time, OECD projections of inflation was generally much weaker than turned out. Analysis of the growth errors shows that the OECD projections in the crisis years were larger in countries with more international trade openness and greater presence of foreign banks – as in the UK. Their repeated assumption that the euro area crisis would stabilise or ease played an important role in overly optimistic recovery projections.
The OECD has been called a think tank, monitoring agency, rich man’s club and unacademic university. Whatever you want to call it, the OECD has a lot of power though. It is a group of 30 member countries that discuss and develop economic and social policy.
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In the coverage of the British GDP figures last week, some attention was paid to the ONS observation that on a per head basis GDP in 2015 Q2 is likely to be back to the pre-crisis level. This may be all well and good, but is hardly a measure of economic performance.
The relevant measure is instead the pace of expansion (i.e. growth) of GDP per head, and on this basis the present recovery is still the slowest on records that extend back to the middle of the nineteenth century.
The shortfall between the latest recovery and all others is marginally reduced relative to the previous version of this analysis (here), with growth over the five years of 6% rather than 5%. But as before this is still around only half the pace of all but one (1886-1891) of the worse of the other recoveries.
Strikingly the recovery from the great depression (1932-1937) was three times faster than the current expansion.
After the initial failure of spending cuts at the start of the decade, over the 1930s policy had turned to expansion on both the monetary and fiscal fronts.
Frances O’Grady, TUC General Secretary: “We can’t continue with an economy becoming even more unbalanced than it was before the recession. We need a new plan for productivity and growth, because the current one is failing to deliver across the whole economy. We need more investment in infrastructure, innovation and skills, instead of rushing into another round of severe cuts that will damage public services and put growth at risk”.
Oxford University’s Professor Simon Wren-Lewis “Anyone who continues to describe what is happening in the UK as a ‘strong recovery’ either has not bothered to look at the data, or is being deliberately deceptive“.
If economic growth in the UK is the second fastest in the developed world behind the USA, the developed world has a lot to be worried about.