Is Britain running out of oomph?

A remarkable piece over at A Fistful of Euros puts the Eurozone crisis and, by implication, our own economic woes, into the context of a generalised crisis facing all developed economies. Three things have caused this, says Edward Hugh, high levels of debt, aging populations and the shift in the balance of economic power to the emerging economies.

The point to get is that it isn’t simply the level of debt that is the problem, it is the level of debt in the context of  the implicit liabilities (in terms of health and pensions) which such population ageing represents, and the reduced growth outlook that having declining and ageing populations represents. Europe’s leaders are essentially in denial on the extent of this problem, and are putting all their eggs in the “structural reforms to raise trend growth” basket.

And the reforms haven’t worked. As Newsnight’s Paul Mason said earlier this week, “expansionary fiscal contraction” has failed:

Yesterday, then, allows us to look at the real structural problems and opportunities that face Britain. We are a country that was not able to enact “expansionary fiscal contraction” – because we had kidded ourselves about our basic economic potential….

Chris Dillow reckons the British economy may have been running out of oomph even before the recession. In 2008, the banking crisis threw one of the few oomphy bits into reverse, taking everyone else with it.

Then, as Paul Krugman says, George Osborne’s attempts to reform the economy drained what little oomph was left:

[H]istory says that a financial crisis reduces long-run growth potential if policymakers don’t limit the short-run damage it does.

The recession and the build up of debt has come just at the point where the developed economies are least able to deal with it. As I said yesterday, the young society of the 1960s could outrun its debt. The aging society of the 2010s may just not have the oomph.

This entry was posted in Peak State, Public Finances, UK Economy. Bookmark the permalink.

6 Responses to Is Britain running out of oomph?

  1. Pingback: Is Britain running out of oomph? - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Jim says:

    Why do you continually go on about fiscal contraction? We haven’t actually had any fiscal contraction! So to say that the recent admitting that the economy was slowing down is down to ”cuts’ in government spending is nonsense. According to the figures from the Treasury (here: http://www.hm-treasury.gov.uk/d/psf.pdf – page 10) the actual public sector expenditure is running at or above 2010/11 levels, which in themselves were above 2009/10 levels. So while certain departments may have suffeed cuts I grant you, there have been no cuts overall in the amount of money the State pumps into the economy. So whatever slowing of the economy there is, its not due to cuts, unless your definition of cuts means ‘spending more than last year, and the year before that too.’

  3. Prateek Buch says:

    An interesting thought, and one that should give policy-makers pause for thought.
    I’d suggest that Britain, and many leading Western economies for that matter, may well have oomph left in them in some form or another – but that it would be more accurate to say that their economies as currently configured have run out of oomph.
    Vince Cable likens the 2007/9 financial crisis (arguably still ongoing) as a heart attack – I’d say that the Coalition’s desperate attempts to revive the patient since then have failed precisely because they’re trying to revive a patient that’s beyond saving – or in other words, the very foundations of our economy are what have failed and policies aimed at trying to get us back to growth and employment based on the same assumptions that worked in the past two decades are largely worthless if not actively damaging.
    Some of us have said for some time that what we’re witnessing is in large part due to structural defects in the way that the economy is wired – with far too little attention paid to medium-term goals and too much paid to short-term (mainly financial) markers of success en route to those goals.
    That sounds like mindless leftist waffle (moi? leftist waffle?), but we should remember that the economy that emerged from the last convulsive global crisis in the mid-70s was radically different to that which preceded it – not necessarily better for all in all dimensions, but different. Same for the post-Depression, post-Bretton Woods economy – radically different from that which went before. This alone should give succour to those charged with steering us through these oomph-less times – that with clarity of vision and by growing a pair, we can enact policies that make use of the new oomph that will emerge from the ashes of the old.

  4. Prateek says here some of what comes also to my mind, though I doubt any of us has clarity of vision to foresee decades (maybe even weeks?) ahead.

    It would be astonishing if in the meduim or longer term either the global economy – or, to consider Rick’s most recent specific, European pension issues – will look anything like they do now.

    Over forthcoming decades it willl to a significant degree be actual physical realities which have changed the landscape… energy and water resourcing, population shifts, food, human and other life-form health and much else will have shaped things very differently. Even economics bumps into biology every so often.

    The same observations about change can of course also be made for the time and scenario gap between Keynes, some 80 years ago, and now; and still that generic model largely makes sense and the (losely labelled) ‘monetarist’ one largely doesn’t…. except for the small minority whose ‘short term financial markers’, in Prateek’s words ,it serves well, thank you very much.

    Plus, returning to matters of biological reality, the Keynesian position is much nearer to the ‘Do no harm’ (to human beings) philosophy than is the monetarist one. Maybe that gives us a clue, for starters…?

    But in the end it will take serious future-facing debate to get anywhere on the problems to come concerning actual physical resources; and my bet is that any resolution will require fundamental social and cultural repositioning (aka overt political leadership to an entirely new place).

    At the moment the debates, from ‘the economy’ to ‘pensions’ to anything else you want to name, are being framed in stolidly conventional terms.

    Only when that stops and intelligent, competent leaders – preferably of demonstrable integrity – invite us to look at the inevitablity of very different, new socio-economic paradigms, are we likely to be able to begin to understand the inevitable enormity of the changes ahead, and the pressing need to start planning (for?) them now.

    How will resources be allocated ten, twenty of fifty years hence? And in what parts of the world? Will we even understand anything by the term ‘retirement’ then? And so on….

    And why are pretty well all politicians, virtually everwhere, so reluctant / unable even to try to think about these things? Perhaps we need to start things off by shoving a bit of Oomph the way of the politicos?

  5. Dipper says:

    I’ve worked with people from a variety of countries and cultures, and my over-riding impression is that Britain has the most creative culture I’ve come across by a long way. If we can’t do better than most of the rest of the world we must be really crap.

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