The wrong recovery
John O’Farrell calls for an honest critique of the downturn’s causes rather than a focus on rising property values.
Twenty years ago, Leonard Cohen marked the democratic revolutions which ended the Cold War thus:
“It’s coming from the feel That this ain’t exactly real, Or it’s real, but it ain’t exactly there.”
Cohen was questioning the euphoria by asking: “What is democracy, anyway?” especially in the Western states which assumed that they were democratic enough already.
A similar query could be asked of the repeated assertions by the Chancellor and his accomplices that the UK economy is in recovery. Although some official indicators are showing positive signs, it is not that clear if these are the measures we should be getting excited about. Are we making the same errors of a decade ago?
The financial crash of 2008 was caused by too much dependence on the financial sector. This fuelled the Great Northern Ireland Property Bubble and the explosion of personal debt which fuelled our economy.
What critics of austerity said was not that the economy would never recover but that it would take much longer due to cuts investment and demand. Three years later, some feeble figures are being waved around as if growth of less than 1 per cent was proof that we never had it so good.
Martin Wolf is the most respected economics commentator in the UK because his Financial Times readership can’t be easily spun. His verdict on the economy: “Performance since Mr Osborne took office in May 2010 has been dismal. Over three years, the economy has grown by a cumulative total of 2.2 per cent. In June 2010 the Office for Budget Responsibility forecast that the economy would expand by 8.2 per cent between 2010 and 2013 … the slowest British recovery on record.
“Spencer Dale and James Talbot of the Bank of England have shown that UK performance is dismal even by the standards of other crisis-hit, high-income economies … Mr Osborne responds that fiscal policy did not cause the dismal underperformance. That was due to inflation shocks and the eurozone. Since Mr Osborne was a cheerleader for the eurozone’s austerity, he cannot wash his hands of all blame.”
Business investment across the UK is on the floor. According to the latest set of National Statistics, it decreased by 2.7 per cent in the last quarter. The current account deficit in 2012, which measures trade balance for the UK, was nearly three times what it was in 2011.
2013 trade figures do not look promising either. So where is this recovery coming from you might ask?
Borrowing and bricks. The household savings rate has plummeted, leading to an increase in household consumption. This means that instead of paying off debts, people are most likely running down savings or borrowing again. Due to the continuing strain on banks, new money lenders like pay day loans companies have sprouted up to fill the gap.
Property values are increasing on average, but prices are being pulled up by the soaring housing market of the South East of England and London, itself a product of lack of supply. House prices are not rising because people’s incomes have recovered or because they feel secure to borrow again. True to form, the UK Government is reprising the role of reckless banks and guarantee mortgages for people who cannot afford them through its Help To Buy scheme.
Similar sleight-of-hand is at work with the employment figures, with far too many of ‘new’ private sector jobs being low-paid, or part-time, or zero-hours, or simply transferred from the public sector.
The real question we should have been asking for the past five years is: “What kind of society we want to live in after this recession?”
We have had the opportunity to properly question the assumptions which created the mess: the widening inequalities of income, wealth, education, aspiration and health; the idolatrous worship of fame and fortune; the commodification of nature, sport, culture and leisure. Instead, we get excited about house prices.
