Miserabilism Rides Again
Well, it’s been a long time since I’ve indulged in economic apocalypticism in this space. Here it is: short, strong, and oh-so dark and bitter. Excerpts:
We are nearing the end of a period of 250 years in which growth has been the assumed normal. And, without action, this will have stark implications for the economies of the West.
Most remarkable was that this lasted for so long, in defiance of logic. And a spendthrift public had nothing on policymakers. Gordon Brown declared the end of “boom and bust” and gloried in “growth”, despite expansion being nothing more than the spending of borrowed money. Between 2001-02 and 2009-10, Britain added £5.40 of private and public debt for each £1 of GDP growth. Between 1998 and 2012, real GDP increased by £338bn, while debt soared by £1.1 trillion. No other country got it so wrong, but the same was happening across the West.
The compounding mistake was a belief that globalisation would make everyone richer. The problem was that the West reduced production without corresponding reductions in consumption. At constant 2011 values, US consumer consumption rose by $6.5 trillion (£4.1 trillion) between 1981 and 2011, while government consumption rose by $1.7 trillion. But the combined output of manufacturing, construction, agriculture and the extractive industries grew by $600bn. At less than $200bn in 2011, net services exports did little to bridge the gap. This left domestically-consumed services and debt. Talk of Western economies moving into services was waffle – consumers sold each other greater numbers of hair cuts and fast food, while increasingly depending on imported goods. The debts used to buy them also soared. Between 1981 and 2011, US indebtedness rose from $11 trillion to $54 trillion.
The third trend – the massaging of economic statistics – may serve as explanation for why this happened. In the US, the benchmark inflation measure has been modified by “substitution”, “hedonics” and “geometric weighting” to the point that reported numbers seem six percentage points lower than under the calculation used until the 1980s. US unemployment excludes so many categories (like “discouraged workers”) that it hides higher levels of inactivity. The critical distortion is inflation. It feeds into calculations showing “growth”, when evidence from other benchmarks is that Western economies have stagnated for a decade. Distorted inflation also tells earners that they are getting better off, even when this conflicts with their own perceptions.
Read the whole thing. Is this analyst wrong? I miss our old economist commenter Pyrrho, who was a great help in sorting out false alarmism from scary fact.
(Via The Browser)