Against Austerity. Been There. Seen It. And Hoping To Get The T-Shirt

During my time as Lewisham's Cabinet Member for Resources, I have taken every opportunity to make the point that the cuts that the Coalition has imposed on local government are part of an Austerity policy that isn't working. I went on about this so much that last year, after my speech on the Council's Budget, my opposite number on the Lib Dem benches, having become rather tired and emotional, pleaded with me to 'change the record'. Shouldn't I take his advice now that in the last quarter the UK economy has grown at an annualised rate of over 3%?

Well, not according to former US Treasury Secretary Larry Summers. In a recent article for the FT entitled, British austerity is no model for the rest of the world, he explains, as others have done, that in fact Austerity was abandoned some time ago. He also says that the UK's recent fast growth can be explained by the greater scope for catching up to pre-crisis levels that exists in the UK. US GDP, for example, is now well above the level it reached at the end of 2007, unlike that of the UK. He also makes the interesting point that the US economy grew at 9% a year for a number of years after the low point of the Depression in 1933. Such high growth was a reflection of the depth of the crisis from which the economy was recovering. As he puts it,

No one has ever taken the pace of the US recovery from the Depression as evidence for the austerity policies that helped to induce it.

By way of illustration, below is the chart I took from Simon Wren-Lewis' blog that I reproduced in a post I wrote back in December entitled, The Return Of Growth – The Celebration Of A Tragedy.

Here you see how far the UK economy's GDP person has fallen below its trend and therefore how much ground it needs to make up to get us back to where we started when the crisis blew up in 2008. You will also see that higher than average growth rates occurred in the UK as the economy recovered from the recessions in the 1980s and 1990s, catching up lost ground to get back to achieving trend growth. The experience of my business is instructive here. During 2009/10, we had the highest growth rate in sales ever. This was because business virtually dried up for a time in 2008/09, so as we recovered from next to nothing our sales growth looked spectacular in percentage terms, even though total volumes were well down on 2007/08 levels. Looking back, my business partner and I didn't celebrate this as a great achievement. What reasonable person would? As Simon Wren-Lewis has pointed out, if all you really want is growth, then you could just close half of the economy's productive capacity down one year, then fire it up the next. Sometimes it's not speed that matters, but total distance travelled in the right direction, as anyone who has taken a wrong turn involving a motorway will know.

In a recent article in the Guardian, the economist Ha-Joon Chang develops this theme. People talk about the 1990s being Japan's 'lost decade', as far as economic growth is concerned. But Ha-Joon points out that in Japan between 1990 and 2000, GDP per person grew by 10.5%. However, in the UK between 2007 and 2013, GDP per person fell by 6.6%. As he says,

This means that, unless the UK economy miraculously grows at around 5% a year for the next four years (factoring in population growth rate of around 0.7% a year), it is going to have a decade that is even more "lost" than Japan's 1990s.

Put another way, real wages in the UK, which saw some the the biggest falls in the OECD, have a long way to rise before they get back to the levels they were at the start of the Great Recession.

So, I have decided to stick to my guns and keep spinning that old 'Anti-Austerity' cracked record. Been there. Seen it. And I have put in a request for the T-shirt for Father's Day.