The length of this period of economic stagnation is almost unprecedented

The only era remotely comparable is the 1920s, covering the economic chaos at the end of the war and the disastrous return to the gold standard

poundcoin

 

Figures released today by the Office for National Statistics (ONS) show that unemployment fell by 60,000 between October and December last year.

Real earnings also grew in 2015 by 2.5 per cent, a positive figure for the first time since 2007, ie. 2015 was the first year when pay growth outstripped inflation in 8 years.

But it’s not all good news, as real earnings still stand at 5¾ per cent below the 2007 peak.

Projecting forwards using the official forecasts for earnings and inflation, shows real earnings will not recapture their 2007 peak until 2018.

At face value the ‘lost decade’ looks like it will now be 11 years long, and this is on the basis of official projections which are not known for their pessimism. (I am using the government’s preferred CPI measure; the story is likely to be even worse on the RPI.)

The level of real earnings (2014 prices)

lost11_1

Never before in the history I have readily accessible (for which figures extend back to the 1850s) has such a period of decline and stagnation had to be endured. The chart below shows a decade growth rate. Across the whole period real earnings grew on average by 15 per cent a decade.

Between the Second World War and 2007 they grew by 26 per cent a decade (annual averages are derived by dividing by ten). In 2017 the decade figure will show a decline of -1.7 per cent. The charts shows how the progress of the post-war age has been brought decisively to a halt.

Real earnings, decade growth rate

lost11_2

The only era remotely comparable episode was around the 1920s. This is a terrifying precedent, covering the economic chaos at the end of the First World War, the disastrous return to the gold standard in 1925, the great depression that began in 1930 and the disastrous ‘May Committee’ spending cuts spending cuts that were imposed in the face of that depression.

But even then, real earnings declined for ‘only’ ten years.

The great depression finally taught the world that the only way out of an economic crisis was for governments to manage more deliberately the financial system and to use its own expenditure to help expand the economy. Policymakers today remain oblivious to these lessons.

Really the idea that we face even a lost 11 years is based on a forecast of a sustained recovery that on the present course will never come. In the meantime working people are paying a very high price indeed.

Geoff Tily is a senior economist at the TUC. This is a cross-post from the TUC’s ToUChstone blog

5 Responses to “The length of this period of economic stagnation is almost unprecedented”

  1. Steven boston

    I believe there has been a move from employers to conspire to pay no more than £25,000 per year, I am in the construction industry & have in previous years had salary of £40,000 depending on supply / demand. Now though employers bring in agency workers on approx £25,000 & employ office staff & supervisors at the similar rate of £25,000 or less. There aren’t the amount of vacancies to allow people to negotiate up & employers have their pick of agency staff who they can change on a weekly basis if necessary. The employer is king in the current climate & they’ve used austerity as a buzz word to keep wages low.

  2. Gerry Toner

    We definitely need a better deal but this explanation is not helping. the long run trend [2002/2018 or 1875/2015] is positive. Labour continues to fail because it tries to exploit short term weaknesses and ignore the positives thus failing to understand. The Tories do not need to understand they believe is greed and uneven access to ‘wealth’. We need to challenge the very foundation of these economics. The problem of capitalism is not it is evil but that it has limits and these are now exposed. A more fundamental outlook based on ‘human centred economics’ i.e. not economics, is needed. Work is a capitalist concept. Producing value is what all societies do. To be productive is not merely to go to work, for a capitalist or other form of ‘owner’.

  3. Robert Petulengro

    “The great depression finally taught the world that the only way out of an economic crisis was for governments to manage more deliberately the financial system and to use its own expenditure to help expand the economy.”

    Indeed yes.
    Hitler and Mussolini and Franco all put this lesson into practice. That meant that the USA and Britain had to follow suit. There was indeed full employment between 1939 and 1945.
    The government cannot expand the economy. what the government does is to supervise the economy. And that means bureaucracy rules. Bureaucrats deaden any form of initiative and they stop people being professional. Please ask the BMA or the NUS representatives about this.

  4. ted francis

    Government can create measures that contribute to growth. They can ensure that investment in manufacture produces demonstrable results is latterly subject to tax benefits. They can toughen legislation governing minimum wage, short and long term contracts, employment of agency-supplied employees, outlaw zero hours and encourage worker share-holding participation. Regrettably, this administration seem only interested in creating growth that favours the top 10%.

  5. David Davies

    The `recovery’ is as big a lie as the `long term economic plan’, and no more meddlesome top down privatisation of the NHS.

    The `Productivity Paradox’ is easily explained by Minimum Waged ZHC, which the tax dodging `Wealth Creators’ believe to be adequate for tax paying plebs. In a mature economy, it is outrageous that there is even a perceived need for `in work benefits’. If those at the bottom of the heap were paid a fair day’s pay for a fair day’s work – every day – the tax coffers would be overflowing.

Leave a Reply