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When is a recovery not a recovery?

the operation was a success but the patient diedNo recovery worth its name is unsustainable. There are basically four elements which provide both the necessary and sufficient conditions for economic sustainability: business investment, wages, productivity, and exports. On all four counts the current evidence is decidedly negative. Business investment still remains 6.3% below its 2012 level. Wages growth at 0.8% still lags behind inflation at 2.2%. The Bank of England thought productivity (output per hour) would have increased by 10.4% by the second quarter of this year; in fact it has fallen by 1.2% over this period. Exports fell by 2.4% in the most recent quarter despite the major fall in the sterling exchange rate. The ‘recovery’ is built, not on the fundamentals for sustainability, but on consumer credit and rising house prices. It will not last.

The Tories of course deny this. You can always tell when they’re lying, because they repeat the same slogans over and over and over again in order to get a gullible public to believe them – and because Labour is so pathetic at rebutting these major canards, they are presently succeeding far more than they should.

Labour caused all this enormous mess in the first place’, ‘We’re all in it together’, ‘Now we’ve got a recovery, so we’ve been proved right all along’. Each of those statements are plain flat wrong, but Osborne and Cameron repeat them endlessly.

Now Osborne is promulgating two other lies (usually called ‘spin’ in the politicians’ jargon): ‘I’ve always had a long-term economic plan’ and now I’m presiding over ‘a responsible recovery’. The figures betray his falsehood: in 2010 he predicted the structural deficit would be cleared by 2015-16, and now he’s predicting 2018-19, though on current policies it’s unlikely to be before the mid-2020s but more probably never. And for Osborne to claim that this recovery is ‘responsible, when it is based on the same consumer borrowing and housing bubble that regularly caused the boom-and-busts in the past, is simply Orwellian.

The truth is deeply sobering and depressing. In 2013 the UK economy is now 14% smaller than if the 52-year trend from 1955-2007 had continued, and what is even more depressing is that the independent OBR expects none of this to be recovered by 2018. On that basis it is plausible to estimate that the present value of output lost as a result of the crash and Osborne’s perverse and misguided response to it is 500% of annual GDP, that is about £6 trillions. Even the IMF has recently noted:

Economies that apply counter-cyclical fiscal and monetary stimulus in the short run …tend to have smaller output losses over the medium term.”

Osborne had the space to provide strong fiscal support, but reversed it and did the opposite. The consequences are now apparent: despite unprecedentedly low borrowing costs, net public investment will, according to the OBR, average just 1.5% of GDP between 2013-4 to 2018-9 which is a mere two-thirds of its share before the crash, even though the economy desperately needs and can readily afford more. This will hugely, and unnecessarily, inhibit growth, jobs, investment and exports. What sort of ‘responsible recovery’ is that?

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