Thursday, 26 April 2012
Double dip recession: don't say economic historians didn't warn you
Well, well, well. Well, well, well, well. So it's a double dip recession after all. There's been virtually no growth in the UK economy now for two years. It's flatlining. It's in deep trouble - as is a government that is starting to lurch from crisis to crisis in a manner strongly reminiscent of the hapless Major administration of the 1990s.
There's a sense that European demand has been stagnating, and that certainly hasn't helped. And the present difficulties are to some extent a natural unwinding of the near-fatal heart attack the developed world's economy had in 2007-2008. That's especially affected a banking-and-services heavy UK economy.
But the major component of the present crisis is a fall in domestic construction and domestic demand - both baked-at-home crises that the Chancellor's rhetoric and tax rises, if not yet his direct spending cuts, have helped to heat up. Both roadblocks that anyone familiar with the economic crises of 1964-67 and 1973-76 would have seen coming a mile off. And remember: we are only just at the start of the fiscal contraction that the public spending squeeze will effect. Up to now government cash has been adding to growth. Want to imagine what will happen when that stops next year? No, me neither.
It was always risky to set out on this radical course at a time when there were very few engines of growth left in the West. And you know what? Economic historians warned you. We wrote policy papers. We blogged for thinktanks. We pontificated in the newspapers. We wrote to the newspapers en bloc. We raged in our own blogs.
To no avail.
Next time, perhaps Chancellors should listen to economic historians... and not to the outdated nostrums of the banks.