The growth figures for the last quarter of 2012 were disappointing. Desperately disappointing. In fact, just desperate. What they mean is that, for the whole of 2012, the British economy didn’t grow at all.
Judging from the polls, it seems as if many people are yearning for the years of growth under Labour. The boom before the bust.
Except that the former never happened. The impression of prosperity that helped Blair and Brown win a second and third term was an illusion. The reality is laid bare in an op-ed for City AM by Dr Tim Morgan, global head of research at Tullett Prebon:
- “Gordon Brown declared the end of ‘boom and bust’ and gloried in ‘growth’, despite expansion being nothing more than the spending of borrowed money. Between 2001-02 and 2009-10, Britain added £5.40 of private and public debt for each £1 of GDP growth. Between 1998 and 2012, real GDP increased by £338bn, while debt soared by £1.1 trillion. No other country got it so wrong, but the same was happening across the West.”
No other country got it so wrong. One has to wonder how Labour has managed to suffer so little long-term political damage as a result of its disastrous record in office.
But here’s another question: If the boom was not really a boom, then what was the bust that followed it? Tim Morgan has the answer:
- “Since the 1980s, a relentless shift to immediate consumption resulted in the accumulation of debt on an unprecedented scale. The financial crisis was not entirely the result of a short period of malfeasance by a tiny minority. What began in 2008 was the denouement of a broad-based process that lasted for 30 years.”
In other words, what happened in 2008 was that the “the worst financial bubble in history” finally popped. And so, with the a cushion of easy credit yanked away, what we see are the cold, hard realities of western decline.
Morgan describes four long-term trends that have combined to kill off economic growth in Europe and America. The first of these is the “the great credit super-cycle” (see above). The second and third – globalisation and the end of easy energy – deserve posts of their own. For now, let’s take a look at the fourth – “the massaging of economic statistics”.
Morgan’s argument is that, across the western world, key economic indicators have been manipulated to such a degree as to invalidate our basic assumptions:
- “The critical distortion is inflation. It feeds into calculations showing ‘growth’, when evidence from other benchmarks is that Western economies have stagnated for a decade. Distorted inflation also tells earners that they are getting better off, even when this conflicts with their own perceptions.”
Therefore the boom before the bust was doubly bogus – the puffed-up creation of a debt bubble and the artifact of systematic statistical trickery.
If Tim Morgan and likeminded analysts are even half-right, then the most of what passes for economic policy (whether of left, right or centre) is pitifully irrelevant. Given the scale of the economic challenges that we face as a nation, we have precious little time to waste on small ideas.