Generating...Lost National Income since the Financial Crisis of 2008.
In his 1939 radio address, ‘When the day of peace comes’, John Maynard Keynes predicted the end of mass unemployment:
And in fact, we did have full employment for a long period after the war - so what went wrong?
Unfortunately, the economic turmoil of the 1970’s provided the perfect opportunity for Margaret Thatcher to implement her Neoliberal agenda. Some 30 years later, we can see that their result is mass unemployment, rising inequality, trade unions being side-lined, real wages stagnating and all sorts of asset bubbles.
Government after government, have pursued the same old strategy of trying to stimulate the private sector by lower and lower interest rates. Michel Kalecki described the process, in his 1943 essay:
‘The Political aspects of full employment’
The 2008 great financial crisis demonstrated the folly of these policies. As the debt bubble began to crash, the solution was to blow the bubble up again, interest rates being lowered to just above zero. Currently, a new housing bubble is being created with George Osborne’s ‘Help to Buy’ scheme.
The UK is muddling along with sluggish growth - the date that output-gets-back-to-trend being pushed forward to at least 2017. In the meantime, unemployment, broken marriages, suicides and all the social problems that come with a struggling economy are rife. The automatic stabilisers (unemployment and other benefits) initially did a great deal to alleviate these problems, but the current coalition government has seen fit to take apart this safety net - arguing falsely that the UK cannot afford them. The problem with these policies, can be clearly seen in the graph.
The gap between the potential and actual growth of the economy is the wasted resources.
It is lost income. It is wrecked lives, bust businesses, idle machinery, wage deflation and zero hour contracts (with their uncertainty of working hours) - all of which cause drag and lack of aggregate demand in the economy.
As a monetary sovereign country, our range of policy options is far greater than that for fixed exchange countries. We do not have to endure the absurd “expansionary fiscal contraction”. The economy will stay mired in stagnation unless government steps in to fill aggregate demand.
We cannot get back what has already been lost, but austerity policies must end now.
We need a strong fiscal stimulus with social housing as a priority; modernising and building new infrastructure; and a proper well paid Jobs programme (particularly for youth and women who have been proportionally harder hit).
We have the means. All that is required is the will.
- Andy B.
Neil Wilsons site, in depth coverage of unemployment figures & UK sector balances
UK Tax Research - covers tax issues.
Pieria with experts from different fields coming together to discuss the issues of our time.
New Economic Perspectives a wonderful blog where brilliant minds in economics gather to share ideas.
Warren Mosler who helped set the groundwork for Modern Monetary Theory.
Think-Left has been exposing austerity for the fraud that it is for years.
1) Accumulated output gap between 2008-2013: £450 billion (IMF paper here discussing potential GDP estimates.)
2) Linear extrapolation of ongoing output gap from 2013 onward absent fiscal shocks. (see discussion from Tejvan Pettinger here)
3) Log-linear trend of 2000's growth is inaccurate based on unsustainable asset bubbles (so economy slightly overperformed potential).
4) Consideration was given to the loss of productive capacity in wake of financial crisis (as outlined by Michael Dicks from Barclay's here