The British Office of National Statistics have published two new data releases in the last week which show that the British economy is plunging further into a deepening recession. On July 20, 2012, it published the Public Sector Finances, June 2012, which showed that the deficit is increasing. Then it published the – Gross Domestic Product, Preliminary Estimate, Q2 2012 – yesterday (July 25, 2012), which showed that the British economy had contracted n real terms by a staggering 0.7 per cent in the June quarter. The one hope on the near horizon for the British economy might be the Olympic Games, which are being use to gloss over the savage recession that the British government has deliberately created. However, a closer understanding of the way in which events such as the Olympic Games impact on the host economy suggests that the majority of benefits are already in the data and the dismal future facing Britain will not be attenuated by the running and jumping (and the rest of it).
The British government brought down their 2012 Budget yesterday. I haven’t had time to fully digest all the detail yet and I am not yet fully conversant with all the discussion papers that underpinned the official budget documents. My experience tells me that one usually finds some really interesting points that are hidden in the fine print of some of the less obvious government documents. Sometimes these points are “game makers”, which really expose the ideological slant of the budget. Not that you have to do much digging in this budget to determine what agenda the British government is now pursuing. The “bond markets are about to close us down” rhetoric is giving way now to Thatcherite “trickle down” stories. This budget is trying to sell the “puppy” that if more real income is transferred to the rich then they will ensure, through their enhanced enterprise, that the poor (which cedes real income) will eventually be better off. That is a variant on the “fiscal contraction expansion” myth.
The British Office of National Statistics released a new report yesterday (February 29, 2012) – Young people in work – 2012 – which provides a scary view of how austerity is impacting on the future British adults. It shows that the employment rates of 16-24 year olds in Britain have fallen dramatically in the least several years and that they are bearing the brunt of the recession. The evidence once again highlights the nonsense of imposing fiscal austerity on a nation that is struggling to generate private spending growth sufficient to provide ample employment growth. Once again, the myopia of fiscal austerity is staggering. What does the British government think that British society is going to look like in 20 years when its future adults are being excoriated by the lack of opportunity that the government policy is creating as a deliberate act? Collapsing youth employment rates mean that this cohort is being excluded from the activities which promote stability both in individual terms (self esteem etc) and societal terms. Societies that indulge in this sort of exclusion will rue the day.
Last week, the UK Office of National Statistics released their – Second Estimate of GDP Q4 2011 – which updates (once more information is available) the flash estimates that were released recently. The information confirms that the British economy went backwards in the fourth-quarter 2011 and confirmed that the September quarter 2011 growth was overestimated and the latest publication revised that downwards from 0.6 per cent to 0.5 per cent, a small revision but downwards nonetheless. There is now a real prospect of the economy entering a double-dip recession. The British government is now under pressure to revise its current budget strategy in order to prevent that probability. However the response of the British government (courtesy of the Chancellor) is to defend its ideological position with outright lies. The Chancellor claims that the British government can do nothing about the slide into recession because it is run out of money. Modern Monetary Theory (MMT) demonstrates its impossibility of that event occurring from a financial perspective. What the Chancellor really is telling the British people is that the government refuses to stop unemployment rising. Why the Opposition and the Press are not exposing these lies is a further problem.
This week I seem to have been obsessed with monetary aggregates, which are are strange thing for a Modern Monetary Theory (MMT) writer to be concerned with given that MMT does not place any particular emphasis on such movements. MMT rejects the notion that the broader monetary measures are driven by the monetary base (hence a rejection of the money multiplier concept in mainstream macroeconomics) and MMT also rejects the notion that a rising monetary base will be inflationary. The two rejections are interlinked. But that is not to say that the evolution of the broad aggregates is without informational content. What they paint is a picture of the conditions in the private sector economy – particularly in relation to the demand for loans. In this blog I consider recent developments in the US broad aggregates and compare them to the UK and the Eurozone, which I analysed earlier this week. But first I consider some fiscal developments in the US, which, as it happens, are tied closely to the movements in the broad monetary measures. The bottom-line is that the US is growing because it has not yet gone into fiscal retreat and the broad monetary measures are picking that growth up. The opposite is the case of the European economies (counting the UK in that set) where governments have deliberately undermined economic growth and further damaging private sector spending plans.
Just as the recent monetary data from the Eurozone has revealed the parlous state of demand there, the money supply data released by the Bank of England yesterday revealed a collapsing borrowing by households and firms in Britain scale not previously seen. It is clear that the December data shows that households are deleveraging (paying credit cards down) and business firms are now in full retreat similar to the worst of the recent downturn in 2009. The evidence for that conclusion is to be found in the fact that the Bank of England’s broad money supply measure contracted by 1.4 per cent in December, which the Bank noted was the largest single month contraction on record (shared with December 2010). Just like the latest ECB monetary aggregates are showing what the real situation is like in the Eurozone, the Bank of England’s data is painting a very grim picture of life in Britain as the draconian fiscal austerity drives that economy into the ground. The data also provides a continued rejection of mainstream macroeconomic theory, which is an interesting aspect in its own right.
Recent data releases suggest that the current economic experience on the two sides of the Atlantic is very different. The latest data shows that the UK economy is now contracting and unemployment is rising as fiscal austerity begins to bite. Conversely, the latest US data shows that growth is on-going and the unemployment rate is finally starting to fall. This may be a temporary return to growth because the political developments that may occur later in this year could see some serious, British-style fiscal austerity being imposed on the US economy. At present though, my assessment of these disparate trends is that fiscal austerity is contractionary if non-government spending is insufficient to offset the decline in public spending. However, some observers are trying to hold out the US experience as vindicating those who believe in the notion of a “fiscal contraction expansion”. But the data tells us clearly that the US is not an example of this mania.
A striking characteristic of the last few decades has been the way the so-called “progressive” political parties have adopted policy frameworks and thinking that were previously the exclusive domain of the conservatives. Nothing could be more obvious than the way in which all the major parties around the world now speak neo-liberal economics as if it was the only way of thinking about the economy and economic policy. Slowly but surely the options that parties are willing to consider have been narrowed down and policy is now conducted in a straitjacket which cannot deliver prosperity for all as well as advancing environmental objectives. It is understandable that during recessions expectations become downgraded by workers about the types of jobs they will except, by consumers about the level of spending they can sustain, and by firms about what investment projects will be viable in the period ahead, etc. But it is strange that when the prevailing economic paradigm not only caused the great recession but is prolonging it at great cost, that the major parties remain locked down in the neo-liberal mire – blinded to other options. It is clearly time to think outside of this box and that is what I try to promote in this blog. But we also have to be careful that when we go wandering we are still on solid macroeconomic ground.