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This is the longest economic slump in modern history

July 10, 2012 3:29 pm

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This shocking graph from NIESR that proves this is the most prolonged slump in modern history – longer even than the Great Depression of the 1930s:

(h/t: @EdConwaySky)

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  • hp

    This is going to take a long time to put right.
    We have seen the collapse of the largest debt bubble (aka credit boom) in history.
    In the bit of the economy that I inhabit, we are seeing double-digit growth.
    But we’re just a small island of sustainable industry in a sea of debt-fuelled nonsense.

  • JC

    A close link to the EuroZone won’t help either.

  • JoeDM

    The bigger the binge,  the bigger the hangover.

    • Brumanuensis

      Which is why Spain, which on average ran a budget surplus between 2000 and 2007, with lower public debt than Germany or the UK, is storming ahead at the moment.

      • Quiet_Sceptic

        Conveniently forgetting the huge property bubble which brought down its banking sector.

        • Brumanuensis

          I’m all for a discussion about balance-sheet recessions, but this has got what to do with the Spanish government’s fiscal policy exactly?

          • Quiet_Sceptic

            Nothing but then your quote about the Spanish budget surplus had nothing to do with the economic binge referred to by JoeDM.

            Spain’s unsustainable economic debt binge wasn’t its public sector deficit, it was the unsustainable construction and real estate boom.

          • Chocktaw Ridge

            Same in Ireland… Greece… America… everywhere!

      • hp

        Unfortunately, the Spanish taxpayer is on the hook for the collapse of the property bubble, and excessive local govt spending.

  • aracataca

    Manufacturing output down again this quarter. All this points to a 3rd successive quarter of negative growth. We’re drifting into a depression here that could take 20 years to get out of.

  • Brumanuensis

    I’m guessing that if the economy contracts again in Q2, Osborne will blame the:

    a). The Eurozone

    b). The Jubilee

    This in addition to snow, rain, a Royal Wedding, the Eurozone (bis) and strikes, as past excuses.

    • John Ruddy

      Its been a while since we had floods in the blame list….

      • Chocktaw Ridge

        If I were Osborne I’d consider blaming everything on an act of God….

      • aracataca

        Sorry Brum but my  money is on the excessive rain this time around.

  • Chocktaw Ridge

    I’ve got a question: Has austerity ever actually turned a country around economically? Does anybody have a few historic examples where a programme of severe cuts and austerity has kick-started an economy and led to the creation of millions of well-paid jobs in the private sector? After some googling I can’t find a single example. Shouldn’t somebody tell George Osborne that his policies may lead to the country taking a hiding for nothing?

    • LaurenceB

      There’s plenty of evidence that the opposite IS true. Check out:

      http://www.guardian.co.uk/commentisfree/2012/jun/04/austerity-policy-eurozone-crisis

      In the first paragraph the author is talking about the kind of conventional Tory policies currently being pursued by Osborne:

      “The remedies on offer are well known. Reduce budget deficits by cutting spending – especially “unproductive” social welfare spending that reduces growth by making poor people less willing to work. Cut taxes at the top and deregulate business (euphemistically called “cutting red tape”) so that the “wealth creators” have greater incentives to invest and generate growth; and make hiring and firing easier.It is increasingly accepted that these policies are not working in the current environment. But less widespread is the recognition that there is also plenty of historical evidence showing that they have never worked. The same happened during the 1982 developing world debt crisis, the 1994 Mexican crisis, the 1997 Asian crisis, the Brazilian and the Russian crises in 1998, and the Argentinian crisis of 2002. All the crisis-stricken countries were forced (usually by the IMF) to cut spending and run budget surpluses, only to see their economies sink deeper into recession. Going back a bit further, the Great Depression also showed that cutting budget deficits too far and too quickly in the middle of a recession only makes things worse.As for the need to cut social spending to revive growth, there is no historical evidence to support it either. From 1945 to 1990, per capita income in Europe grew considerably faster than in the US, despite its countries having welfare states on average a third larger than that of the US. Even after 1990, when European growth slowed down, countries like Sweden and Finland, with much larger welfare spending, grew faster than the US.”

      The world is moving towards a slump.

      God help us!

    • hp

      We are not under ‘austerity’ conditions.
      We have a govt. spending deficit.
      We have run one for a decade.
      Debt upon debt upon debt has not led to economic prosperity for the UK as a whole, although a few have done very well out of it.
      We need to grasp the nettle and realise that more debt is not the answer.
      We already pay more for debt interest than we spend on Defence.
      And that is while interest rates are at an historic low.
      Add a couple of percentage points to the rate and we are getting close to the Education budget.
      Blair’s mantra was not Education, Education, Education.
      It was Debt, Debt, Debt.

      • Chocktaw Ridge

        I think you’d better have a word with Mervyn King and George Osborne since both of these men do think that the Coalition budgets ARE austerian budgets and that as far as the country and its populace goes the future IS one of Austerity, Austerity, Austerity.

        Besides what I’m actually looking for is for some historical examples of countries who have followed programmes similar to that outlined by Osborne and bounced back to growth and prosperity in the manner Cameron and Co., predicted pre 2010.

        Any takers?

        • hp

          I think we are in an historically unique situation, and not in a good way.
          There will be no ‘bounce back’.
          Efforts to do so (zero interest rates, QE) are merely trying to re-inflate the bubble.
          Economic resources need to be transferred from the failed ‘bubble’ economy to the sustainable one.  But the debt bubble had been growing for so long that this transfer will take time.  It will involve zero net growth and substancial unemployment.  It will be slow.  There will be hardship.  There is no magic wand. 
          We have brought this on ourselves.  This is the consequence of our actions.
          We can either start to put it right, or not.
          I can say this because I am not a politician.
          I would like to think that someone who wants to be in government would be honest about the future (and the present for that matter).
          Who will be the first to face up to reality?

          • Chocktaw Ridge

            So we agree then that Osborne IS wrong and that current policies will NOT trampoline the nation towards a brighter future? There are many examples of Keynesian economics pulling countries out of depressions, e.g., pre second world war America in the thirties and forties, but I can’t find a single example of anything remotely similar successful economically as far as “cuts and austerity” goes and was wondering if any such historical precedents were extant. Based on extant data as far as I can see the current programme of cuts and curbs is not only not working but may actually be making things irretrievably much worse. 

          • hp

            We will not be ‘trampolined’towards a brighter future.
            We have just crashed from a debt bubble.

            If public debt worked wonders for the economy then, after 10 years of it, we would not be in this situation.  We would not have even had 10 yrs of mounting debt because the debt-fuelled economic boost would have erradicated the debt!
            But it hasn’t.
            We have debt and recession together.

            There is no ‘austerity’ here:  we still run a growing budget deficit.  This growing debt has not stopped the recession.
            The recession will end when the self-sustaining economy out-grows the collapsing debt-fuelled one.  Call it ‘rebalancing’ or ‘correction’ or whatever. It will involve zero growth and unemployment.  We have to take our medicine at some stage. Better to take it now while interest rates are low.

            What you are looking for is an example of a country that has achieved growth without running up an overbearing debt.  There must be one out there somewhere!  Though you might have to look outside the West to find one.  We all seem to be in the mire.

          • Chocktaw Ridge

            So Cameron is lying then when he claims that the Coalition have “reduced” the deficit by 25% then? What a fibber!

          • hp

            Dunno.
            The last I saw, we were only slowing deficit growth.
            But there was some recent news that govt spend was less than expected.

            Out of interest: a you a tax contributor or tax consumer? BTW ‘tax consumer’ includes all so-called private sector businesses (industries!) that are funded by govt spending. 

          • Chocktaw Ridge

            “Are you a tax contributor or tax consumer? ”

            Before I read what follows these words I would have said I was a tax contributor. Now I’m not so sure. But then of course I don’t know what the sound of one hand clapping is either!

            What a pain.

          • hp

            Ran out of space.
            I’ll start a new chain.

          • Peter Barnard

            Oh, dear (“… all so-called private sector businesses that are funded by govt spending”).

            The tax-payer funded NHS spends about £25 billion a year on GP-prescribed drugs, equivalent to around £1,000 per household.

            So, let’s drop your taxes for your household by £1,000 a year.

            It’s a fact of life, I’m afraid, that many people will need some form of drugs later in life to control a chronic health condition (mine is hypertension). The prudent householder would take out private-sector insurance against the need for drugs and, in aggregate, householders would need to raise £25 billion  a year for drugs.

            If that were to come to pass, would the “tax consuming” pharmaceutical industry magically be transformed into a private-sector “wealth creator,” while still doing exactly the same thing?

            We are all in the business of the production, distribution and consumption of goods and services. The distinction between private sector “wealth creating” and public sector “wealth consuming” is economic hogwash.

          • Peter Barnard

            Take a look at the chart on page 7 of the 2010 Coalition Budget, hp. I think that you’ll find it interesting.

            By 2007, private sector gross debt was about 400% of GDP (up from 170% in 1987 and 210% in 1997). Of this 400%, about 100% was non-financial companies, 100% household and 200% financial companies.

            Government gross debt, by comparison, was about 45% of GDP.

            No matter how much rhetoric the right sprays about “Labour’s profligacy and deficits,” government debt wasn’t the problem in any way, shape or form. The problem was in the private sector.

            As it was in Spain and Ireland. According to Eurostat, between 1999 and 2007 gross government debt dropped from 48% of GDP to 25% in Ireland, and from 62% to 36% in Spain.

          • hp

            Not profligate? So how, as a taxpayer*, has the government saddled me with a debt the size of my mortgage?  The difference being that by planning my finances I am paying down my mortgage. It looks like the plan is to make my kids pay for the national debt.  I am not impressed.

            *By ‘taxpayer’ I mean net taxpayer, not tax consumer.  It is only the productivity of non-public sector workers that can pay off the public sector debt. If all your income is coming out of govt spending then that bit you give back in tax doesn’t help overall.

            I wonder if opinions on our debt situation depend on whether you are a tax payer or a tax consumer.

          • Peter Barnard

            Rhetoric and economic ignorance, hp. I can’t be bothered.

          • hp

            Well, where else but through the productivity of the private sector worker can we raise funds?

  • hp

    My point regarding net tax contribution is this:-
    A typical GP (for example) is well paid and makes a valuable contribution to society.  But because he is paid out of the public purse, he cannot share the debt burden.  If he just gave all his pay back to the exchequer (which he doesn’t) he would be cost neutral and that is the most he can achieve.
    The same goes for everyone who is paid from the public purse:  teachers, armed forces, civil servants, IT contractors, MPs, much of the construction industry etc, etc.
    And everyone who’s income depends upon them.
    Even the young entrepreneur who sets up a business offering golf lessons to doctors can’t make a net contribution.
    The whole of the debt falls upon the shoulders of those not paid from the public purse.
    The productivity of the private sector only (through income taxes, expenditure taxes and corporation tax) can fund the debt burden.
    The debt is £ 1,000,000,000,000
    That is several tens of thousands of pounds per contributing worker – about the same size as my mortgage.

    Before increasing the debt further we need to understand what it is for and how we are going to pay for it.  After 10 consecutive years of budget deficit has ended in recession, I genuinely doubt that increased debt will make everything right this time.

    We already pay more on debt interest than we do on defence.
    We need to take the hint and plan our expenditure.
    If we didn’t have a huge debt to service we could fund further education properly, and do so much more, too.

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