Monday, August 26, 2013

Britain’s Economy is Starting to Recover – Because Conservative Policy Was a Failure, Not A Success

How  Can That Be – Read On

The British economy has been under attack by the Conservative government for about three years and the results have been predictable.  The austerity program implemented by the Conservative party which is in control of Britain’s economic policy produced the usual results, recession and unemployment.  But new numbers are beginning to show some recovery.

A sunny bundle of numbers certainly suggests that Britain’s economy is on the mend. Surveys that measure consumer confidence show shoppers are feeling positive: vital in an economy in which consumption makes up two-thirds of spending. Surveys suggest managers’ purchasing plans are at record highs across construction, manufacturing and services.

Much of the upswing comes from better news on housing. Prices are rising across the country. Mortgage costs are lower. Britons with a big deposit can now borrow at 1.5%; even those on higher loan-to-value ratios have seen rates plunge. With interest payments down, disposable income is up. That explains the rosy outlook of shoppers and rising consumption. Since estate agents, lawyers and banks make up a decent chunk of services output, it also helps explain why managers in the service sector are feeling optimistic.

So does this mean the Conservative policy has been a success?  Well no, British GDP is below pre-recession levels and not expected to get to it’s previous high for several more years.  Britain is having some success in spite of not because of Conservatives, in part because of a recovery in housing and in large part because London and south England is a very desirable place to live, assuming one is rich and can live anywhere.

But another reason why Britain may be starting to recover is that real wages have dropped, what Economists call internal deflation.

British workers have suffered one of the biggest falls in real wages among European countries over the past three years, with only crisis-hit Greece, Portugal and the Netherlands doing worse.

New figures collated by the House of Commons Library show a 5.5 per cent drop in wages after inflation since 2010. This follows other recent national statistics on the rising cost of living and a substantial fall in living standards since the first of George Osborne's austerity budgets was delivered three years ago.

This of course is one of the classical Keynesian concepts for economic recovery.  A drop in real wages due to inflation makes labor less expensive and so employment does not fall as much as it might have otherwise, which has been the case in Britain. But if wages are down 5.5% how exactly has the working class been made better off?

Of course all of this  news comes at a price.

Professor John Van Reenen, director of the Centre for Economic Performance at the London School of Economics, described the fall in real wages in the UK as "stunning – and something that did not happen in previous postwar recessions in Britain". He said the weak performance reflected poor growth and linked it to falling GDP and national income, "which is now 3.5 per cent smaller than it was before the financial crisis".

In other words, large numbers of people had to be made worse off, with lower paying jobs and lower real income in order to make a few better off.  Conservative economic policy in a nutshell.

No comments:

Post a Comment