An economic manic depression
Sudden mood swings in the debate on recoveries and double-dip recessions are symptoms of a more profound economic and political malaise.
So, are we in for a double-dip recession or a fully-fledged recovery? Economic reports in the UK appear to have become as changeable as those notorious British weather forecasts. One week we are told the recovery is stronger than anybody hoped, the next that things are worse than was feared. Daily headlines switch from optimism to darkness without pausing for thought.
Britain and other Western nations may have avoided a full-scale economic depression. But attitudes to the economy appear to be suffering from manic depression. What’s behind the mood swings?
Look at the symptoms of economic manic depression. In late July it was reported that Britain’s economic growth had jumped to 1.1 per cent in the second quarter of 2010, well ahead of expectations and suggesting an annualised growth rate of well over four per cent. Though economists acknowledged that these figures were likely to prove exceptional, they nonetheless prompted upbeat headlines.
Next came the news that the big British banks, including those rescued by the government, had returned to multi-billion pound profit, which was widely hailed as a sign of economic recovery (with the familiar complaints about bankers’ bonuses). Then this week, it was reported that Britain’s exports in June were at the highest for two years, ‘fuelling hopes of an economic recovery’ after dire balance of trade figures in May. And at the same time the latest jobless statistics showed that the number of people unemployed in Britain fell by around 50,000 to a total of 2.46million in the three months to June.
All (quite) well and (fairly) good(ish). Yet yesterday, on the same day as those falling unemployment statistics were published, the Bank of England officially lowered its economic growth forecast for 2011, from 3.4 per cent to 2.5 per cent. The Bank’s governor announced that Britain faced a ‘choppy recovery’. Coming shortly after Vince Cable, the Lib-Con business secretary, had talked about the prospects of a double-dip recession, this started a new round of gloomy headlines about ‘dark clouds on the horizon’ and about even 2.5 per cent being over-optimistic. There are also increasing warnings about big job losses ahead, due to the expected major cuts in public spending – and to new problems in the private sector, including the big banks.
The markets have also been showing symptoms of economic manic depression, with shares and sterling moving up and down quite erratically to the accompaniment of hot-and-cold running commentary, while after months of hype about rising house prices some small price falls prompted immediate speculation about another property slump. And no sooner had the talk of a World Cup-led recovery in the retail sector faded than headlines declared sales are down again, with the dreaded index of consumer confidence reportedly at its lowest since the depth of recession in spring 2009 (all of which may have changed again by the time you read this, of course).
While Britain is perhaps particularly prone to these symptoms, it might be noted that there are similar trends evident in the US, where recent talk of a strong recovery has this week been replaced by reports of ‘fears of a marked slowdown in the world’s biggest economy’ and rising unemployment, as the US Federal Reserve launches its latest financial ‘rescue bid’ in an effort to keep mortgage and corporate loan rates down.
Of course, though this economic manic depression apparently involves the mood swings associated with that medical condition, it is not really down to mental illness. It reveals something real about the undynamic state of British capitalism today and the impoverished state of economic debate.
The much-heralded improvements in the economy can quickly be seen to be reversed because they are so insubstantial or shallow in the first place. What does not go up very far does not need to come down very much in order to cause a stir. In reality, the British economy is currently on the road to neither a deep recession nor a vigorous recovery. It is just bumping along the bottom, now bouncing up a little, now falling back a bit, but not going anywhere much just at the moment.
Take a step back from the latest set of un/impressive statistics and put the British economy in a little more perspective, and the absence of any dynamism or decisive shift becomes clearer. What could be the driving force for anything dramatic happening? After all, three factors were largely responsible for the apparent economic boom in Britain from 1997 to 2007 – the expansion of credit, the success of the financial services sector, and the growth of public spending. None of them is now doing the business.
The big banks have become so risk-averse in the wake of the financial crisis that those who once chastised them for their profligacy in handing out credit now attack them for being too tight-fisted with credit for business and first-time home buyers. After the trauma of the recession, the financial services sector centred on the City of London may have started turning big profits again – largely through exploiting the conditions created by the crisis – but there is no return to the ‘boom’ years.
As for state spending, that has long provided a crucial prop to the market economy, never more so than during those recent ‘boom’ years. Even the unexpected upturn in British economic growth in the second quarter was largely down to the public spending on services and construction. However, the Lib-Con coalition has vowed to turn off that tap with swingeing cuts to public spending. State support is so important to the capitalist economy that it remains to be seen how far they can go in practice. But it is already clear that public spending will not be driving economic growth in the near future – several major private sector companies that rely on state contracts are in trouble, and more will follow.
The three main drivers of economic growth in recent decades have effectively gone, and they are not coming back anytime soon. Even more telling is the absence of any basis for a new dynamic economy to be put in their place. So how could there be a serious recovery on the cards? The government is banking on a resurgence of British manufacturing and exports to take the place of public spending, but that looks like wishful thinking. The recent improvement in manufacturing exports was good news; but these days manufacturing is a relatively small part of the British economy, and the little upturn seems to have more to do with the falling value of the pound and an increase in demand from Germany rather than a genuine long-term improvement in UK productivity.
In the absence of anything newly dynamic to drive an economic recovery, all we are left with is the swings and roundabouts of a few decimal points moving upwards or downwards. This is a far bigger issue than the latest set of statistics on house prices or consumer confidence. What sort of economy do we want in the future, where is growth to come from and where is our society heading? Yet these questions are barely being asked as the experts pore over the quarterly figures and change their tune on a weekly basis.
The fickleness of economic discussion today and the symptoms of economic manic depression reflect the short-termism of the markets that did so much to exacerbate the financial crisis. More profoundly, they also reflect the absence of any fundamental debate or strategic view of the economy. It is remarkable that after all that has happened in the past three years, there is still no real political discussion about economic options beyond the narrow-minded accountants’ argument about how many billions to cut and when. The notion of a crisis also being an opportunity to reassess and make important choices has been lost.
While the experts and the political elite fall prey to the economic manic depression, the rest of us are reduced to passive consumers of public affairs, just waiting to see what the next month’s figures might be and how much the government will decide to cut, our jobs and destinies apparently out of our hands. We are expected simply to sit and wait for the statistics to be produced by unseen hands, hoping for the best while fearing the worst. That really is like waiting for the weather forecast. And when did that ever get us anywhere?
Mick Hume is spiked’s editor-at-large.