Thursday, April 26, 2012

UK Recession: “If you do not change direction, you may end up where you are heading.” [updated]

Overnight we heard news the UK is “back” in recession—back in recession because it recorded an “official” decrease in GDP for the quarter of 0.2% after a contraction the previous quarter of 0.3%.

What I find astonishing is anyone thought the anaemic, malinvested, over-taxed, over-regulated, flatlining place was ever out of recession. You know, seriously out of recession. Did anyone believe it apart from Keynesian money manipulators and the few people who still take government GDP numbers seriously?

The measurement of so-called Gross Domestic Product doesn’t measure production at all, it measures spending. And it doesn’t even measure all the spending in an economy—it pretty much just measures consumption spending.  Which leaves largely unmeasured (except by the tax men) all the spending on production that actually keeps an economy going.

So the measurement of Gross Domestic Product is more accurately a measure of Net Domestic Consumption. Something with which governments can too easily fiddle, either by boosting their own spending or encouraging their central banks to “ease” quantitatively.

That the UK’s figures for this fiction are still flatlining despite all their fiddling is a measure of just how anaemic, not to say non-existent, the UK’s recovery really is.

But despite five years of increasingly desperate fiscal and monetary irresponsibility, some folk are still saying the real problem is the UK government hasn’t been fiddling enough.  Their QE programme should have been even more profligate, say numbnuts about the programme that has left the UK another year poorer and deeper in debt. “Their austerity measure didn't work,” bleats the likes of Scott Yorke and sundry other commentators like Bryan Gould et al whose knowledge of economics could almost fill the head of a pin.

Well, as Murray Rothbard, used to say (in so many words) , it’s no crime not to know anything about economics, but it’s pig-ignorant to comment as if you do.

Austerity? The only governments in Europe attempting anything remotely like austerity are Norway, Sweden, Switzerland and Estonia (whose government currently has the only balanced budget in the Eurozone). These are the few Europeans who are doing even relatively well

As for the UK government itself, despite the political rhetoric Cameron and Osborne have imposed the very opposite of austerity.  For the past five years their deficit has been between two to five times that of New Zealand. And…

…despite some very modest spending cuts [records Sean Rosenthal at the Mises Daily], it is now taxing more and spending more than it ever did. Although British spending as a percent of GDP fell mildly from 51.1 percent in 2009 to 49.8 percent in 2011, this level still signifies a massive increase in spending from 2007 levels of 43.9 percent of GDP. Similarly, although the British deficit as a percent of GDP fell from 11 percent in 2009 to 9.4 percent in 2011, this deficit still amounts to a huge surge compared to the 2007 level of only 2.8 percent and, with the exception of this recession, exceeds all other deficits in Britain since World War II.

The British government is spending more than it ever has. It is taxing more than it ever has. And its deficit is more than it ever has been—except for the depths of the war that virtually bankrupted it.

And it hasn’t worked. And why would it? As Tory MP Daniel Hannan vainly tried to tell then-PM Gordon Brown back in ‘09, “you cannot spend your way out of recession or borrow your way out of debt.”

So as the Chinese philosopher LaoTse sagely observed, “If you do not change direction, you may end up where you are heading.”

It’s time, in other words, for current PM Cameron and his Treasurer George Osborne to try something else.

They could do worse than try the same approach that saw the British economy regain its previous peaks just four years into the Great Depression of the 1930s (even while the deficit-spending US was about to go into another trough).

But that would be precisely the opposite of the profligate approach both Labour and the Tories have taken in the five years (and counting) of this Depression.

UPDATE: And in related local news:

There has been a billion dollar deterioration in the NZ government's forecast financial position in just two months, with a 2014/15 surplus of NZ$370 million picked in February now projected to be a NZ$640 million deficit…
   
Despite the new forecasts however, English said the government was still committed to reaching an operating surplus before investment gains and losses in the 2014/15 year…

Yeah right.

And he proposes to do that not by cutting his spending but by increasing it.

So if you believe in that 2014/14 operating surplus, I have a building full of printing presses to sell you.

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1 Comments:

Anonymous Anonymous said...

"“Their austerity measure didn't work,”

It didn't work because it wasn't an austerity measure.

I wouldn't want to use Sweden (60% income tax + 25% VAT = effective rate over 70%) as an example for anything.

But while the UK still has the NHS, state-funded "education", National Insurance, the Dole, student loan scheme, child tax credits and the rest of the stalinist mess of course the UK hasn't enacted any austerity measures

4/26/2012 02:54:00 pm  

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