It All Depends on What You Mean By Recovery

Back in 2007, pundits were warning of a global meltdown, of financial chaos. Iceland was on the verge of bankruptcy and Britain itself was said to be close to bankruptcy. For most people, this was without precedent - nothing like it had happened within living memory.

Fortunately, most governments, Britain's especially, took serious action. The banks were bailed out, and money was discreetly flooded into the economy via quantitative easing - something a shade too close to printing money for some people's tastes. Of course, there are always critics, but there was a recovery - of sorts. Technically the recession had ended, when one quarter saw growth in the economy. Admittedly, that growth was only 0.1 per cent, not even enough to negate the margin of error, so whether or not there actually had been growth was open to doubt.

But ignoring such technical quibbles, “recovery" for economists is a purely theoretical matter anyway. It doesn't mean that the economy really has “recovered,” in the sense of having returned to full health. It doesn't mean that everyone is rich and everything is fine. It’s only a label. Just as the definition of a recession is traditionally regarded as two successive quarters of decline in output, a recovery is usually taken as meaning one quarter of growth. But we need to look beyond the label. What is happening to wages, jobs and consumers’ standards of living? If we fail to take those into account, we are disregarding the essence of the economy’s performance. Is it providing the standards of living that it is capable of? Is the underlying economy healthy, or is it simply an anomalous fluctuation in those three months that makes it seem as if growth has returned?

A typical economic recovery takes three years, and as Gordon Brown had called for a $5 trillion stimulus to the global economy in 2009, with ideal policies, Britain would have been looking at clear signs of movement towards stability by 2012. In fact, Brown warned finance ministers at the G20 London summit of 2009, “to maintain throughout 2010 the programmes of public spending and tax cuts” that had been introduced. (Andrew Woodcock. The Independent. September 5 2009.)

Brown cited studies which had been carried out by US and Japanese experts, “which warned that a premature move towards reducing deficits by cutting back on state spending would be “an error of historic proportions.” (Andrew Woodcock. op cit.)

The coalition government of David Cameron and George Osborne took over from Brown in 2010, but with radically different ideas of how to restore the UK’s economy to full health. George Osborne, Chancellor of the Exchequer, along with the EU’s Wolfgang Schäuble and Olli Rehn, ignored the fact that governments around the world had committed to spending up to $5tr to boost the global economy, and lift it out of recession. Osborne thought that when he took office in 2010, he would cut spending, and complete the recovery.

It is difficult to see the logic of this, and it certainly rejects all commonsense. If a massive input of cash helps avoid a recession, then talking money out of the economy risks pushing us back into a recession. Not only did the conventional wisdom choose the latter course unthinkingly, but Olli Rehn, the European Commissioner for Economic and Monetary Affairs, attacked the critics of austerity. What was his objection to them? “We need to stop putting out these economic studies, because they’re undermining confidence in austerity!” (Paul Krugman. The New York Times. February 16, 2013.) So if a policy is utter garbage, we mustn’t point out its flaws – that would make people lose faith in it!

As early as 2013 Osborne was claiming to have won the battle, and that recovery was on the way. There were signs of growth, he said, and therefore his use of austerity had been validated. But this was now four years after the global stimulus, so a return to normality was actually long overdue. This was not an achievement, so much as a tolerable performance. It was okay. But “signs of growth” are not a guarantee that things are getting better. They could just be the normal day-to-day, month-to-month fluctuations that are normal for any economy.

By 2014 George Osborne was saying that the GDP figures confirmed the recovery was well under way. "Today's figures show that Britain is coming back – but we can't take that for granted. We have to carry on working through our long term economic plan," said the chancellor.” (Katie Allen. The Guardian. April 30 2014.) However the Office for National Statistics said the UK economy was still “0.6% below its pre-crisis peak.” (Katie Allen. The Guardian. April 30 2014.) But why did Osborne need a long term economic plan if a normal recovery takes three years? This was now five years after the global stimulus.

David Blanchflower, a member of the Bank of England Monetary Policy Committee, said that the recovery that had occurred under the coalition was the slowest and worst in one hundred years. He later said that he was mistaken in that claim. “I should have said worst in 314 years. I severely understated how bad things have actually been.” (David Blanchflower. The Independent. August 4 2014.)

In 2020, ten years after Osborne became chancellor, Britain is still struggling. It is undeniable that austerity was not the correct medicine for a nation on the edge of recession. The economy is stumbling along, due to a lack of purchasing power. To withdraw any more purchasing power could tip the nation over the edge, onto a full-blown slump. One has to assume that Osborne had been monitoring the situation, to make sure that the country did not fall into a depression, but made no effort to restore it to normal. Of the chancellors that followed him, with the exception of Sajiv Javid, no-one in office has seriously considered the possibility of boosting the economy in order to escape the unending stagnation. Rishi Sunak gave the impression of generosity on his 2020 budget, but that was merely effect of waving large amounts of money in front of the public, and saying “Look what we’re going to spend.” And thus distracting attention from that fact that some of that money had already been promised, and none of it was enough to make up for 10 years of vicious austerity.

A change in the level of unemployment can be a sign of recovery, but it is a lagging indicator; it does not indicate at the time, but shows its effects after the event. It usually starts to rebound roughly 6 to 18 months after the official recovery. So it is quite possible for a recession to be "over" but unemployment still be going up. In the United States there was some talk of a "jobless recovery", that is, the recession had come to an end, but unemployment could stay high, perhaps for some years.

And if unemployment is high, there is very little upward pressure on wages. Therefore wages, and inevitably, standards of living, could also stay very low for some years. The Cameron government was able to say that thousands of jobs had been created, but many of those were part-time, staffed by workers who actually wanted full time jobs. Others were zero hours contracts, which by definition allow no scope for financial planning and no possibility of a mortgage.

Or, like the workers at City Link, the company puts them down as self-employed. More than 1,000 of City Link’s staff were labelled ‘service delivery partners’ rather than employees, so they were not entitled to any agreed hours, or sick pay, holiday pay or redundancy pay. According to the Office for National Statistics about 4.6 million people are self-employed, many of whom will have been required to ‘consent’ to this status. In this context, to talk about thousands being in “new jobs” is utterly meaningless, if not deceptive. The difference between proper jobs – full-time, permanent, and secure jobs – and zero hours, part-time or ‘voluntary’ self-employed jobs is a distinction that has been put to David Cameron, but in office he continued to use a phrase that implied more than is appropriate.

Partly because of this, inequality is getting worse, partly because the rich handle their investments better, or at least, their investments are managed skilfully for them. But also there is the fact that they have investments. Many people are lucky to have any money left over to get them to the end of the month without starving.

Thomas Piketty argues that the wealth of the rich is growing faster than the economy itself grows, so it is inevitable that inequality becomes harsher. There is also the fact that many in the lower income groups lack the job skills that might give them bargaining power. This is exacerbated by the fact that skilled work is slowly vanishing, to be replaced by unskilled jobs or jobs in services. And the weakness of the trade unions, thanks to anti-union legislation, leaves the workers with very little bargaining power. But the main reason for growing inequality is that those who manage the big corporations are able to skim their massive pay off the top of the profits, but at the same time, control the wages of the ordinary worker. Given this, wages may be sluggish, again for many years.

Thus, we have a scenario in which the economy is officially healthy, the slump is technically over, but people are no better off than they were during the crisis. The worst of times has ended, but nothing is actually better.

Of all the economic terms we use, “recovery," as used since 2010, is the most deceptive, because what does it mean in this context? Absolutely nothing. Like so many of the labels that politicians use, once you have taken all the caveats into account, all that will be left is, like the Cheshire Cat, just the smile.

To say that more people are employed or “in work,” when many of those people may have zero working hours in any given week is an insult to both them and the unemployed. George Osborne said, “Britain is walking tall again.” But this statement is meaningless. It does not even have sufficient depth to be disparaged as a cliché.

And as for the mild improvement in the economy, it is no achievement if we go from minimal growth to stagnant growth, otherwise known as secular stagnation. To say the economy has “recovered” if it is enduring five or ten years of low or zero growth, as Japan did, is an abuse of the language.

The coalition and its successors have acquired a sophisticated skill with words, allowing it to say things that are technically true, but have little connection with the way those same words would be interpreted. For example, when George Osborne talked of living standards rising, most people would think that we were all getting better off. But what Osborne meant was that the average was rising, and that could simply mean that with inequality getting worse, the rich were getting much richer while the ordinary worker was at best not getting any poorer, so the average went up. There is a statistician's joke: a billionaire walks into a room – and the average income goes up by a million pounds. But no-one in the room is actually richer, no-one is better off.

Osborne’s claims of living standards going up represents a similar sleight of hand. Real wages rose in 2015 not because pay was rising, but because inflation fell below the - very low - level of wage rises. It wasn’t a significant rise in living standards but it definitely wasn’t an achievement of Osborne’s. It was partly due to the weak economic recovery, partly due to the falling oil prices and partly due to low interest rates. If any one of these could be claimed by Osborne as his personal achievement, it would be the weak economic recovery; but that really isn’t something to be proud of. The very slight rise in wages was marginally higher than a rate of inflation that was so low that it raised anxiety about possible economic stagnation. The modesty of the wage rise and the possibility of the economy falling into the doldrums are causes for concern rather than celebration.

In short, Osborne was doing all the wrong things, and achieving exactly the result one would expect – a sluggish economy and no recovery. Only the presentation was successful.

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David Simmons is the author of several politics-related books available from Third Avenue Press. One of his books, The Lie of the Land, is available on Kindle, http://www.amazon.co.uk/dp/B00LGVYYTU Price £3.49

His most recent book is What’s The Worst That Could Happen? And What To Do About It. 2nd edition £2.99 UK link for Kindle edition is -

https://www.amazon.co.uk/s?k=What%27s+The+Worst+That+Could+Happen%3A+And+what+to+do+about+it%3A+The+politicisation+of+economics+in+the+early+21st+Century&rh=n%3A341677031&_encoding=UTF8