The Chancellor of the Exchequer gave his Autumn Statement yesterday, involving much fiscal tightening as the economic situation has deteriorated since the budget in March. His statement was informed by the November report of the Office for Budget Responsibility, (OBR), which is basically pretty grim reading as far as I can tell (I’ve not had the time to read it all but have skimmed it pretty deeply).
It was reported in much of the media that the OBR has cut back its growth forecasts for the economy, and indeed they have, but the worst of it doesn’t seem to have appeared in many places, although I saw it online in a Daily Telegraph blog by Jeremy Warner. Because of the Depression, the economy will be 13% smaller by 2016 than was expected in 2008, and “not much bigger than it was in 2007.” Public sector job losses are expected to double up to 710,000. Disposable incomes will shrink some 2.3% this year and shrink again next year, at least. World output fell 1% in September. And most telling of all, standards of living are not expected to rise for up to 14 years! I suppose that means up to 2025. That sounds like a Great Depression to me!
Unfortunately, I couldn’t find this last prediction in the report, but I guess I can take his word for it, for now. It seems plausable given the depth of the Depression around here.
But… in any case, there’s more. In their opening paragraphs, the OBR say,
We stress-test our fiscal forecasts and judgements using sensitivity and scenario analysis. The central economic and fiscal forecasts assume that the euro area finds a way through its current crisis, but a more disorderly outcome is clearly a significant downside risk. This risk cannot be quantified in a meaningful way, as there are numerous different ways in which such an outcome could unfold. Suffice to say, the probability of an outcome much worse than our central forecast is greater than the probability of an outcome much better than our central forecast.
In other words, if the Euro crisis deepens, so does our economic gloom. And the odds are in favour of this happening.
So what is the government, and indeed what are foreign governments talking about doing to fix all this? Well, who knows? It’s all hot air anyway since nobody knows the answers to economic problems. In general they are talking about how quickly they can return the economy to “growth”. Our economy is forecast (now) to grow by 0.7% next year (GDP, 2012). As an aside, remember that inflation is around 5% so really that “growth” is minus 4.3%. So, let’s talk about real growth for a minute…
Achieving real growth is probably the wrong target to be aiming at, in my thinking. By the time this forecast reaches its end-game, in 2016-2017, we will be in a position to know with reasonable certainty whether the world has reached the peak oil point: that is, whether in fact we are starting to run out of oil, noticeably, because production can no longer be increased and will be beginning a long-term decline.
This, and the global warming problem, point the finger firmly towards a different target. We should be trying, not to grow, but to develop sustainable economies. Our standards of living can still improve without growth. Improvements in technology can achieve this, and so can improvements in government, indeed. Economic growth is a shibboleth that is destroying the world we depend upon and it is not necessary. It is also something of an illusion as our constantly depreciating fiat currencies confuse the issue of when we have growth and when we have inflation anyway, and the system encourages decidedly unsustainable debt bubbles as we must all surely realise by now.