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
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)
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
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.
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