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Monday, 25 August 2014

The Delusion of Success: The Real Economic Facts

Ministers, led by Gideon Osborne, boast about Britain having "stronger economic growth than any other G8/G10 country". What this means is that cash turnover in Britain is increasing, year on year.

That factlet stands alongside a host of much more substantial items of data.

Real wages overall, the rate at which cash incomes are increasing compared to the rate at which prices are increasing, are not increasing. More and more people are getting jobs: but the overwhelming majority of them are precarious part-time jobs; many of them based on zero-hours contracts. Personal debt is increasing, and savings are being spent; which indicates that the increase in consumer spending is almost certainly temporary. The promised rise in interest rates, when it comes, will make borrowing more expensive and savings better rewarded; and this is bound to impact on demand.

The deficit on the balance of trade is increasing: more of what we consume is imported, month by month: and the rate of increase in imports is not balanced by the modest increase in exports. More importantly, the prolongation of the limitation on incomes has meant that more and more of what people buy in the shops is 'own-brand' lines, both in food and household goods [including clothes]. This is important, because the implication is that the volume of imports that are bought relatively cheaply for own-labelling is increasing, while fewer consumers are able to buy branded products. Since brands predominate among British exports, the loss of home markets to brandowning companies weakens them, making them less likely to invest in new products and modernised plant.
The engineering sector has been doing modestly well, increasing both output and exports earlier in the year; but now the strength of the pound [relative especially to euros and US dollars] means that momentum is being lost in export markets. Over the past quarter-year wages in the engineering sector have been rising faster than other wages, but this optimistic phase may have faltered.

The deficit on spending by the government is increasing: even though the housing boom has given a boost to takings in the tax on house sales, known as stamp duty. Since 'deficit reduction' is the central plank of government policy, this failure to balance the budget is significant; but so deep is the public mood of cynicism about politics that it is much less of an issue among voters that it merits being. Meanwhile the continual drip of cuts in government spending - which are now scheduled to continue to at least 2017 - is lowering the quality of life to all the vulnerable groups in the community. Defence spending has been reduced below danger level, at a time when the threat of terrorism both at home and abroad is increasing exponentially: the country is in danger as a direct result of the incidence of the cuts.
There is a legend, much beloved of Economists, that 'growth' will eventually enable living standards to rise and the most painful cuts to be undone: but there is no sign that this will happen. Increasing turnover in the shops selling imported goods counts as 'growth' but it does not signify any strength in the economy.

What has occurred since 2007 is not simply a 'recession': it is a climacteric comparable at least with the period 1879-79 when the need to restructure the economy totally was recognised. More of this soon!

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