MATTHEW WATKINSON • WEB: http://www.fishsnorkel.com • TWITTER: http://twitter.com/fishsnorkel
WHAT GDP WITHOUT THAT RECESSION? Matthew Watkinson
“If we want things to stay as they are, things will have to change.” Giuseppe di Lampedusa SUMMARY •
When change is normal, where we want to be is a function of where we were going to be before things changed, not where we were when they changed.
THE EXPANSION GAP Consider the following graph:
UK GDP in millions of inflation unadjusted pounds
450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000
1955 Q1 1957 Q1 1959 Q1 1961 Q1 1963 Q1 1965 Q1 1967 Q1 1969 Q1 1971 Q1 1973 Q1 1975 Q1 1977 Q1 1979 Q1 1981 Q1 1983 Q1 1985 Q1 1987 Q1 1989 Q1 1991 Q1 1993 Q1 1995 Q1 1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1
0
The dark line shows GDP growth in the UK since 1955 up to and including the great recession. This involved a contraction of between five and six per cent and was quite enough to make a lot of people feel like the sky was falling in. How many people noticed, however, that the great recession only managed to knock the economy back a couple of years (back to the level it was at in the first quarter of 2007 according to the figures)? I would suggest: not many, but that’s exactly what happened. The great recession was labelled great because we had to survive on 2007 GDP levels in 2009, which might, at first glance, sound a tiny bit precious. Unfortunately, however, when growth is normal, the absence of growth is almost as bad as the reversal of growth. Quite logically, the UK didn’t just go backwards to the medieval depths of 1
MATTHEW WATKINSON • WEB: http://www.fishsnorkel.com • TWITTER: http://twitter.com/fishsnorkel
2007, it also didn’t go forwards (the red line on the graph represents business as usual) to the intoxicating heights of our dream 2009, and that’s just as disastrous, particularly when so much of our GDP is based on spending money we haven’t actually earned yet: “In a growing economy debt and interest can be repaid, in a declining economy not even the principle can be paid back.” Feasta and The Risk/Resilience Network, Tipping Point: Near-Term Implications of a Peak in Global Oil Production (http://bit.ly/aCXc3F)
The debt bubble is beyond the scope of this essay, however... “DEBT, n. An ingenious substitute for the chain and whip of the slave-driver." Ambrose Bierce
...so let’s return to the fact that the UK’s GDP should have broken four hundred billion by now; a fact that should leave nobody in any doubt about why everybody is so gloomy these days. We are almost back where we started of course, but we’re not where we thought we were going to be when we were where we are (?!), so we’re definitely going to feel poor for a long time yet, even if our recent growth continues at its current pace. Incidentally, I have taken the liberty of plotting some possible growth scenarios for the next ten years. The first (the red line) is based on pre-recession aspirations (as an extension of historical growth rates prior to the ‘great’ two-year regression) and the second (the blue line) is based on post-recession growth rates. Both follow similar trajectories and both require the addition of another two hundred billion pounds of luxury consumption (or about half as much GDP again), give or take. Such is the power of exponential growth.
GDP in millions of inflation unadjusted pounds
700,000
600,000
500,000
400,000
300,000
200,000
100,000
1955 Q1 1957 Q3 1960 Q1 1962 Q3 1965 Q1 1967 Q3 1970 Q1 1972 Q3 1975 Q1 1977 Q3 1980 Q1 1982 Q3 1985 Q1 1987 Q3 1990 Q1 1992 Q3 1995 Q1 1997 Q3 2000 Q1 2002 Q3 2005 Q1 2007 Q3 2010 Q1 2012 Q3 2015 Q1 2017 Q3 2020 Q1
0
‘If we want things to stay as they are, things will have to change more rapidly than at any time in human history!’ 2