Comments on: After the crash, the fall. After the fall, slower growth.

By: Neil Craig

Neil Craig — Tue, 05 May 2009 13:47:07 +0000

I don’t think things need be so bad as that. It depends very much on the growth rate. If we got even the world average long term growth rate of 5%, let alone India & China’s 10% we could pay off debts in a few years. Growth in turn is not a fixed amount & if we got rid of government anti-nuclear & other ludditry & overregulation we could manage it.

This from Jerry Pournelle yesterday:

“Low cost energy is the key to economic growth, and nothing the government is doing would have as great an effect as a huge nuclear power program. The TVA was the best investment of the New Deal. It may be that private power would have done as well, but the cheap energy from TVA brought energy to the South.

Cheap power is the key to growth; and clearly that will not happen under the Change that we can believe in.”

It could happen in Britain. he best electoral promise in many years was Sarah Palin’s “Starting in January, in a McCain-Palin administration, we’re going to lay more pipelines and build more nuclear plants”. That would work & there are many people in the Conservative party who would support it. I’m not sure if there are enough.

By: the pro from dover

the pro from dover — Mon, 04 May 2009 09:56:22 +0000

I haven’t seen anyone yet analyse Darling’s first projected borrowing figure of £35 billion, compared to his current figure of £175 billion. When you subtract the bail-outs, how close are the two figures? I suspect they aint close at all.

By: Tapestry

Tapestry — Sun, 03 May 2009 20:42:17 +0000

Makes a lot of sense John. But don’t forget that just as everyone is agreed that things are dreadful is usually when things start to move back a bit the other way. There is a political cycle as well as an economic one. Once the likes of you are running the economy, taxes will fall. Optimism will rise. Investment will lift.

I found your blogging about what an economic disaster Brown was most interesting when most people in Britain still imagined him some kind of genius (as advertised). Now everyone is onto him, we should all be writing the next phase.

Banking services are sorely needed in the developing world where insecurity and corruption are the rule. British banks have a good reputation and can provide a key component to the parts of the world that are likely to grow fast. HSBC for example is investing nothing into US and Europe now but Asia and the developing world. Banking could yet be a great business for the British government to be in, once the uselessness of Brown, and his interference in banking decisions are removed from the equation.

Imagine a Redwood mind directing the terms for a worldwide multi-trillion British banking business. And the vast proceeds from the privatisations. Taxes in Britain could be abolished (Once we quit the EU).

By: mikestallard

mikestallard — Sun, 03 May 2009 16:27:43 +0000

PS I forgot the final killer: insurance.

By: mikestallard

mikestallard — Sun, 03 May 2009 16:26:35 +0000

What about morale?
If people are told that there is a recession on, they will take full advantage. I know of one company where the rents on their space have been put up really high. All the Directors have had to lose their company car and cycle to work. All the rest of the staff has left for the dole queue. The Landlord, however, has his limo. “It is the recession.”
If enterprising people are controlled so that they cannot take any risks in case they are sued, if they have to give an account in triplicate of every single employee to make sure they fit the government target, if they cannot get any start up from the banks, if they have fire regulations, health and safety checks and then, on top of all this, have to pay just under half their salary in tax to a corrupt government, they are not going to make the effort.
Much easier to get a safe, pensioned job with the government with little work to do and a desk.
That, to me, is much more important than any figures which will, at the end of the day, reflect rather than predict reality.

By: jim

jim — Sun, 03 May 2009 13:27:38 +0000

Sadly you are not pessimistic enough. Don’t forget to factor in the declines in income from our rapidly depleting oil fields. I haven’t seen anybody calculate how much of a hole that that is about to blow in the national budget.
According to the Spectator the other day, Treasury officials are trembling at the prospect of a government gilt failure before autumn. Assuming that happens, we will be into a full blown sterling crisis. Hence GDP will fall dramatically.
Things will only get worse for the foreseeable future, I’m afraid.

By: Denis Cooper

Denis Cooper — Sun, 03 May 2009 09:09:08 +0000

Four points here, if I may.

1. To a very good first approximation you should take population growth out of the equation, as per capita GDP is what matters.

2. The 2.5% pa trend growth rate is the average over booms and busts, so (if/) when recovery starts a 5% drop in GDP should be corrected quite quickly.

3. The 2.5% pa is the real GDP trend growth rate, corrected for inflation, and one effect of cancelling the gilts owned by the Bank of England would be to increase inflation and depreciate the real value of the debt which has to be repaid.

4. The GDP statistic only represents the total value of money transactions within the economy, and it doesn’t provide a good measure of even the material prosperity, let alone the general well-being, of the nation. In fact single-mindedly pursuing increases in GDP, as Brown has done, can be profoundly counter-productive.

I certainly wouldn’t argue that the General Progress Indicator would be a satisfactory replacement for GDP, but it’s worth thinking about some of the issues raised, eg:

http://www.rprogress.org/publications/2007/GPI%202006.pdf

“During World War II, gross domestic product (then gross national product) accounts were introduced to measure wartime production capacity (Cobb et al., 1995). Since then, GDP has become the world’s most ubiquitous indicator of economic progress. It is widely used by policymakers, economists, international agencies and the media as the primary scorecard of a nation’s economic health and well-being. Yet, as we know from its creator Simon Kuznets, the GDP was never intended for this role (Kuznets, 1934). It is merely a gross tally of products and services bought and sold, with no distinctions between transactions that enhance well being and those that diminish it. Instead of distinguishing costs from benefits, productive activities from destructive ones, or sustainable non-monetized costs and benefit including all informal sector exchanges, using GDP as a barometer of overall wellbeing leads to some perverse results. Consider these: GDP increases with polluting activities and then again with clean-ups. Pollution is a double benefit to the economy since GDP grows when we manufacture toxic chemicals and again when we are forced to clean them up. GDP is boosted by crime. Each year, Americans incur nearly $40 billion in crime related costs in the form of lost and damaged property and expenditures on locks, alarms, and security systems. GDP counts these needless expenditures as an economic gain, implying that crime is good for economic growth.”