... Mr K drew my attention to Tullett Prebon's lastest Strategy Note
Government and opposition alike base their thinking on the assumption that, by one means or another, growth can be restored. We see no reason whatever to assume this. To focus on the deficit is to ignore the fact that the British economy had become debt dependant long before the financial crisis.
Together, private and public borrowing has averaged 11.2% of GDP since 2003. Over the past decade, borrowing has driven up output in financial services (+123%), construction (+27%) and real estate (+26%), whilst lavish public spending has propelled expansion in health (+35%), education (+27%) and public administration and defence (+22%).
Real output in all other industries is now 5% lower than it was ten years ago.
Between them, real estate, finance, health, education, construction and public administration are six of Britain’s eight largest industries, and account for more than 58% of output. Yet the future prospects for at least five of these six sectors are grim, because:
- Public sector spending cuts are modest, but growth is now a thing of the past
- Net mortgage borrowing, critical to the real estate and construction sectors, has crashed, from £113bn in 2007-08 to a derisory £3bn last year.
- The aggregate of private (mortgage and credit) borrowing has now turned negative.
That sectors which account for 58% of output are hamstrung in this way leads us to believe that the fiscal and economic outlook is drastically worse than is generally assumed...
A grim document
16 hours ago
13 comments:
Not getting any better lower down the chain either.
People focused on paying off their debts could mean UK retailers face a decade of non-existent or declining growth, especially if they are based outside of London, according to a new report.
http://www.theappointment.co.uk/news/default.asp?submitted=True&DateType=3&Page=10&RecsPerPage=5&ID=6959
With luck de-leveraging will allow for growth in the future when people can spend what they earn and what they save.
This long-heralded crash seems permanently in the immediate future.
Tullet Prebon’s thesis is total codswallop. They are saying essentially that various sectors of the economy will decline or not expand, ergo the economy as a whole cannot be expanded. Rubbish. Demand for goods and services can be bumped any time (when inflation permits. As Keynes pointed out, demand can be bumped up by printing money and channelling it into household pockets.
What do people do when they find more money in their pockets or bank accounts? THEY SPEND IT! And that increases demand for goods and services. Whether the latter goods and services are or are not the ones that Tullet Prebon thinks are in terminal decline is utterly irrelevant. People may spend their money five years hence on luminous hair dye and holidays on the Moon for all I know. I couldn’t care less what they spend their money on.
While they are right about the appalling legacy of Blair and Brown, can one take seriously the prognostications of chaps who can't even spell? Bah: "debt dependant" indeed.
"They are saying essentially that various sectors of the economy will decline or not expand, ergo the economy as a whole cannot be expanded."
No they are not, they are saying that various sectors of the economy, the ones that have expanded the most in the recent past, are likely to decline, and that the rest of the economy, which is already in decline, is likely to continue to be so. From that I think it a reasonable conclusion that the economy as a whole is unlikely to expand. You appear to be confused between probability and possibility.
Never mind, we can all take in each others washing.
Meantime, let's have a nice cup of tea, and I think we've still got some of those nourishing carrot tops and cabbage leaves.
I think what they're really saying is that counting increasing debt as economic growth is dumb.
Musgrave is a Keynes Nut. He pops up on Samizdata occasionally, or he used to when I used to read it anyway, doing this exclamatory style of Keynesian fanboyism.
Anyway, he's of course talking total codswallop. It's the Aggregate Statistics Fallacy, I'm afraid. Increasing teh money supply doesn't stimulate production. Never has, never will. Why? Because you've given people money for not producing anything.
YOu can model it mentally as a kind of human bucket-chain, passing the new money from one person to the next (slowly, as it goes, since it clocks through the economy on a monthly paycheck/bill payment schedule). What you end up with is some number of workers dependent on government money, and not producing anything. And the same "output" of goods and services you started with, at higher prices which compensate for the extra money in the economy.
So, it's a net loss, because your non-producing State sector got bigger and is permanently addicted to stimulus money. And those are people who are never going to go into the productive economy.
Keynes was a fool. His arithmetic is fundamentally flawed. Following it for decades is the reason why all the "growth" is in those State supported sectors (either the overt State, or permanently "stimulated" sectors like construction) while output of productive goods and services is actually falling.
I have rather more respect for Musgrave than the insulting Ian B but the problem in the UK does not correspond to Musgrave's diagnosis.
Huge numbers of variable rate mortgage holders have been given handouts of many hundreds of pounds a month in reduced mortgage repayments thanks to deliberately low interest rates They are not spending this money in the shops,however,and the shops are closing in droves.
The guvmnt is intent on reducing demand further by cutting the public sector under the cloak of deficit reduction.The private sector is supposed to take the strain and increase production.But if the homeowners won't spend ,its not going to happen.
- Net mortgage borrowing, critical to the real estate and construction sectors, has crashed, from £113bn in 2007-08 to a derisory £3bn last year.
113bn to 3bn Is this correct? - Thats a Hell of a drop, House prices must surely be in for a hell of a correction sometime soon.
As Bill points out, there are very good indicators that growth is not going to occur any time soon.
We are in for several years of stagnation, similar to those that Germany experienced post-post-reunification. Once we have regained competitiveness and dug ourselves out of the debt hole we will start motoring again.
The problem with Keynes is that he says we can have something for nothing. Duh.
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