“It ain’t what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so.” – Mark Twain
A stagnant future?
Part of the narrative of the various now completed UK election campaigns has been the theme of stagnating living standards in the UK, with various data points suggesting that neither the UK economy nor its residents have managed to improve their standing since the peak of the last economic cycle in 2007/2008. Interestingly, the same is true of US data, where such statistics form part of an argument suggesting that monetary policy needs to remain accommodative for some time yet due to there being something wrong with large parts of the world economy. In spite of much disagreement as to the diagnosis on what this ‘something’ is, there seems to be a good deal of agreement that whatever it is, it is here to stay.
Before readers start packing their bags for sunnier economic climes, wherever they might be, it is worth remembering that price indices and the various data that rely on their input may not be as accurate at describing our day-to-day economic welfare as is routinely suggested.
To better illustrate this, we can go back to the UK 25 years ago. A time when Baroness Thatcher was still in Downing Street (though knives were busily being sharpened behind the scenes), inflation was at nearly 10%, interest rates were at 15% and the UK economy was on the cusp of recession. To those readers born after 1990, it may seem scarcely credible that at this stage, the internet was still the preserve of Tim Berners Lee and a few of his colleagues in Cern, while French and British engineers were yet to meet under the Channel.
Now, as suggested above, doomsayers focus on the statistic that, since 1990, both gross domestic product and inflation adjusted disposable income per person have grown by a little less than 2% a year. Worse still for the UK’s immediate prospects, the bulk of this increase in both metrics was banked in the period running up to the Great Financial Crisis of 2007/08. Since then, both per capita incomes and gross domestic product have stagnated, with a similar story to be told in the US and Europe. As usual the eggheads, most of whom failed to predict this plateau in income and output, are now in almost total agreement that this is what we can expect more of for the foreseeable future.
Has the Great Financial Crisis of 2007/08 permanently hobbled the UK and global economy? Or do the problems, as various data on output per hour suggest, go further back? Satisfying answers remain elusive, particularly as the data may simply fail to capture a lot of the improvements we now take for granted.