Desastre
William Keegan, mientras discute mi artículo de NIER sobre el registro macro del gobierno del Reino Unido, escribe:
Después del colapso de la producción de alrededor del 6-7% engendrado por la crisis financiera, la producción per cápita creció en "poco menos del 2%" de 2010 a 2013, mientras que en 1981-84 y 1992-95 el crecimiento fue superior al 8%. Wren-Lewis comenta: "En resumen, el desempeño del gobierno de coalición ha sido un desastre". "Desastre" es una palabra fuerte de un académico tan riguroso como Wren-Lewis, pero estoy totalmente de acuerdo con él.
Me gusta la idea, que probablemente sea cierta, de que los académicos rigurosos generalmente se abstienen de llamar a las cosas un desastre impreso. ¿Eso significa que no soy tan riguroso como cree Keegan? Pensé que intentaría justificar mi desviación de esta norma con más datos. Proviene de un conjunto de datos recientemente publicado creado por el Banco de Inglaterra. Lo he usado para calcular el PIB per cápita en un horizonte temporal mucho más largo de lo que he mostrado antes. Aquí está.
Es una historia de dos tendencias: una desde 1820 hasta la Primera Guerra Mundial, y otra desde el final de la Segunda Guerra Mundial hasta la crisis financiera. Ahora, si esta es realmente una buena manera de describir cómo evolucionó la economía en los últimos dos siglos, lo dejaré a otros, pero es notable lo bien que esta simple idea de desviaciones en torno a una tendencia constante parece funcionar para la economía del Reino Unido. Para ver esto más claramente, aquí es de 1820 a 1913 con la tendencia dibujada.
La tasa de crecimiento de la tendencia es apenas inferior al 0,9% anual. Aquí está el gráfico equivalente desde 1950.
La tasa de crecimiento de la tendencia, estimada entre 1950 y 2010, es más del doble que la de 1800, aproximadamente el 2.25%. Cuándo y por qué la tasa de crecimiento aumentó tanto entre las dos guerras mundiales es una gran pregunta, pero mi preocupación aquí es con las desviaciones de estas tendencias. Además de quizás dos auges, la década de 1870 y la de 1970, las grandes desviaciones de la tendencia son de corta duración, y la corrección hacia la tendencia se produce con bastante rapidez.
La gran excepción, por supuesto, es lo que ha sucedido desde la Gran Recesión. La desviación de la tendencia siguió creciendo, e incluso con una estimación bastante generosa para 2014, lo mejor que se puede decir es que podríamos haber comenzado a crecer en la tendencia nuevamente, por lo que la brecha ha dejado de crecer. Incluso después de la caída de 1919-21, el crecimiento del PIB durante los siguientes cuatro años estuvo muy por encima de la tendencia. Lo que ha sucedido desde la crisis financiera no tiene precedentes. Este crecimiento por debajo del promedio en el PIB per cápita es una de las razones por las cuales los salarios reales han estado disminuyendo constantemente durante este período, lo que tampoco tiene precedentes.
Por supuesto, podría ser que lo que estamos viendo es parte de un ajuste a una nueva tasa de crecimiento de tendencia más baja que estaba ocurriendo detrás de escena antes de 2010. Eso es lo que suponen los métodos utilizados por la OCDE y el FMI (pero no el OBR) . Sin embargo, implican que 2007 fue un gran auge en el Reino Unido, mientras que todas las demás pruebas dicen que cualquier auge fue decididamente modesto. Podría ser que estas tendencias puedan cambiar repentinamente después de eventos traumáticos. Lo que está muy claro es que los últimos años no son una historia de éxito, y el ritmo constante de la batería en Macromedia que la economía está haciendo bien es completamente inapropiado. Una forma mucho mejor de describir los últimos cuatro años es decir que ha sido un desastre.
Friday, 27 February 2015
Disaster
William Keegan, while discussing my NIER article on the UK government’s macro record, writes:
After the collapse of output of some 6-7% engendered by the financial crisis, output per capita grew by “just under 2%” from 2010 to 2013, whereas in 1981-84 and 1992-95 growth was over 8%. Wren-Lewis comments: “In short, the performance of the coalition government has been a disaster.” “Disaster” is a strong word from such a rigorous academic as Wren-Lewis, but I fully agree with him.
I like the idea - which is probably true - that rigorous academics generally refrain from calling things a disaster in print. Does that mean I’m not as rigorous as Keegan believes? I thought I’d try and justify my departure from this norm with some more data. It comes from a newly released dataset put together by the Bank of England. I’ve used it to calculate GDP per head over a much longer time horizon than I’ve shown before. Here it is.
It is a story of two trends: one from 1820 to WWI, and another from the end of WWII until the financial crisis. Now whether this really is a good way to describe how the economy evolved over the last two centuries I will leave to others, but it is remarkable how well this simple idea of deviations around a constant trend seems to work for the UK economy. To see this more clearly, here is 1820 to 1913 with the trend drawn in.
The trend growth rate, estimated from 1950 to 2010, is more than double that of the 1800s, at about 2.25%. Quite when and why the growth rate increased so much between the two world wars is a huge question, but my concern here is with deviations from these trends. Apart perhaps from two booms - the 1870s and the 1970s - large deviations from trend are short lived, with correction back towards the trend occurring pretty quickly.
The big exception, of course, is what has happened since the Great Recession. The deviation from trend just kept on getting bigger, and even with a fairly generous estimate for 2014 the best that can be said is that we might have started growing at trend again, so the gap has stopped getting any bigger. Even after the slump of 1919-21, GDP growth for the next four years was well above trend. What has happened since the financial crisis is unprecedented. This below average growth in GDP per head is one reason why real wages have been falling steadily over this period, which is also unprecedented.
It could of course be that what we are seeing is part of an adjustment to a new lower trend growth rate that was going on behind the scenes before 2010. That is what the methods used by the OECD and IMF (but not the OBR) assume. However they imply that 2007 was a huge boom in the UK, whereas all the other evidence says any boom was decidedly modest. It could be that these trends can suddenly shift after traumatic events. What is abundantly clear is that the last few years are no success story, and the constant drum beat in macromedia that the economy is doing well is completely inappropriate. A much better way of describing the last four years is to say it has been a disaster.
PS. A "Unit of Account" IS NOT the same as "money" as generally understood by the proletariat. (Acorn).
Anyway, it looks like log to the base "n", that is "e" (2.718) to the power of x. So for the x axis max' above that would be e^3.25 = 25.79 assumed to represent £25,790, which is pretty close to the actuality.
An economist from a premier league University, should ask the question of our politicians, in the "macro-media":-
What exactly will happen if we do not reduce the deficit?
Acorn
and
> Mainly Macro
Oh I see , and thats why there are no units , ta !
I guess the stock answer is that we get devaluation relative to other currencies but if all countries are doing it then it gets even more murky. I think the key danger is that you empower a constituency holding those financial assets (bonds or deposits or cash) who campaign to uphold the value of those assets even at the expense of having a successful economy. Basically you get a campaign for secular stagnation. I had a go posting about it:
https://directeconomicdemocracy.wordpress.com/2013/03/24/political-consequences-of-risk-free-financial-assets/
By contrast the 2008 event was more like the 1930s depression in the USA. That was only cured after WWII and its aftermath induced full employment and flattened the wealth distribution.
I would argue that the last 35 years of growth has not been of the quality of previous growth due to reliance on debt.
I agree with you about the austerity. I just also think that there is a large debt overhang here which provides a drag on the economy which was not necessarily there in previous recessions.
The answer is that we have returned to the pre WWI trend of slow growth. The answer why could be found by answering this question: "Quite when and why the growth rate increased so much between the two world wars is a huge question" but as you said "but my concern here is with deviations from these trends" so let's not look for hard answers, let's only wonder about that "new" age we come into.
As Piketty is pointing out that inequality was reduced between WWs by destruction of "capital" (mostly money/power of oligarchs) and new distribution patterns that was producing agregat demand creating that fast growth trend. Simple, just look at new trend on distribution of money and you will find answers to that 'huge question'.
Strong regulation of banking was ensuring that new distribution of money was constant in sustaining agregate demand and also huge federal spending on R&D. Strong dirigist governments were creating infrastructures that could allow for easy acces and implementation of new ideas and technologies from R&D developed mostly at universities.
Since even before Reagan that changed, after Goldwater, TPTB made a plan on how to reverse all that was achieved under FDR which influenced Europe too. To reverse all that which brought new speedy trend growth. ALEC plan.
http://en.wikipedia.org/wiki/American_Legislative_Exchange_Council
The process was succesfull and wages stoped following productivity growth and banks were deregulated (enforecement was lacking as the first step) which allowed for debt to replace wages as source of Agregate Demand. State is distanced from R&D and put into private hands but with state finacing. Infrastructure for countrywide acces to new inovations is put back into corporate hands, so only specific corporations can benefit from it. Even building physical infrastructure is going back into private control (IT infrastructure) trough privatisation.
And post WWII distribution pattern has stoped by banking crisis since new debt can not replace stagnating wages as the source of AD anymore. In simple wording; AD bubble burst and we have returned to pre WWI trend growth.
Even the term "Secular Stagnation" which is pointing to this new growth trend is a way to discourage anyone to look at how this period of good growth was achieved and just to relax and take this "new" condition of slow growth.
I am quite sympathetic to that idea. I think this is something we'll be seeing in the next 20 years (after those 20 years revolutionary new technologies and smaller PPP/capita differences between countries will allow for fast growth again in what are today's developed countries) across the developed countries, with the exception of the US (though they too will not achieve stellar growth). The UK has a huge financial sector, it will fundamentally grow slow, like the rest of the developed countries but at times it can experience strong booms and busts because of that huge financial sector.
In my opinion British governments should adjust their fiscal policy to be robust against large fluctuations in the financial sector.
In the interest of an unbiased debate, you should visit http://www.tradingeconomics.com/
Pick from Countries, the US; UK and Euro Area. Pick from the right side menu for each country basic GDP; and Money M1. You will get a graph of each element. Change the origin of the X axis to the earliest year available; so you can see the long term trend.
See how the US GDP is nearly back on its trend line, now notice the rate of “anti-austerity” fiscal injection that starts on the Money M1 graph at 2008. Compare that to the UK M1 plot where you will see “austerity” kick-in in 2010 and only start to lift off again in 2013. At which point, the UK is quite a way off its long-term trend line.
Compare both to the Eurozone, where M1 appears to have not responded much to the 2008 crash. Hence no fiscal injections to boost demand, just wall to wall “austerity”. The Eurozone is bigger now with nineteen countries.
The UK economy is lifting off three years late because of “austerity”. It is only lifting off recently because of the governments budget “deficit”; which is currently about £75 billion bigger than it was planned to be.
The US was quicker into budget stimulus than the UK and it kept in on longer. The UK cut back to fast; the evidence is in the numbers. The US since 2013, is now cutting back to fast; the US economy will slow down this year. See:- http://ieconomics.com/government-budget-uk-us
"Science, Technology and the British Industrial ‘Decline’ 1870-1970"
(Cambridge University Press, 1996).
I would also thoroughly recommend any of his seminars or lectures - I saw one in Japan, brilliant.
Questions relating to the fundamental causes of rise and (absolute, not only relative) decline of Great Britain are very important which all economists and historians should know something about. It is a bit like a Classicist understanding the causes of Athenian democratisation and the decline of Rome.
http://de.slideshare.net/genauer/gd-pper-capita-in-ppp-us-versus-euroarea-germany
The financial crisis caught them up (I just can't stop thinking about how Ponzi, Madoff, needed speed of turnover and exuberance to mask what was going on to almost everyone).
Now the financial community, not only has forgotten how to lend traditionally but find themselves in legal/financial positions and huge interconnected marketplaces where their hands are tied, and they are scared that this may all fall apart.
The public needs to re-define the financial community - help the sectors within the financial community find what their purpose are now. I'd use the stable models of before as comparative models (Bagehot may return!).
The current situation is clearly not working for the bulk of society.
JF
Together with a current account deficit of 4%, and government deficit of 4% (each of GDP) there will be substantially blood letting to do after the May 2015 elections.
Given those deficit numbers, the massive increase of government debt from 47 to 91% during the crisis, people from the continent wouldnt call this "austerity"
The OECD number for UK output gap is 1.2% in 2015 (Annex Table 10)
There are no hidden reserves to be lifted to account for the huge current account and government deficits
Taxes can not be really raised, so cutting expenses it will be
OR
taking on ever more debt and inflating it away, the time honored strategy of the UK, after 1920, just that there is now the Euro as an alternative : - )
and did (start) now the the same for the UK (page 9)
http://de.slideshare.net/genauer/sampler-2-of-imf-2014-weo-data-plots
For both the transistion to the higher growth regime (2%) from the prior less than 1% was triggered by a war demanding massive resources (civil war for the US, WWI for the UK)
Both started systematic inflation after 1900 US 2%, 1915 UK 5%
Please also note the marked changes in population growth in the UK around 1800 and 1920, genauer
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