The longest depression

The myth of America’s economic exceptionalism

philmullan Economic growth, Economic policy, Productivity, State intervention, The longest depression

What sort of economy is the returning president Donald Trump inheriting? In otherwise polarised and uncertain times, a consensus stands out: the belief in US economic exceptionalism. America’s recent growth out-performance and its ever-climbing equity markets seem to make the country the exception to economic stagnation across the west. But America’s underlying productive decay is not that different to the other mature industrialised nations. The staying power of the narrative of ‘US exceptionalism’ points not to the US’s exceptional vigour but rather to some peculiar forces for resilience in the face of its long-running productive decline. These US-specific factors reveal America’s superior capacity to offset its moribund tendencies.

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The slow decay of the British economy

philmullan Creative destruction, Democracy, Economic growth, Politics, The longest depression

The sense that Britain isn’t working anymore has too many facets to shrug off as undue gloom and doom, as the current government tries to do. The significant thing about all the shocks that have hit Britain’s economy in recent years is its relative lack of resilience. Compared to its developed peers, Britain has been less able to cope with external blows, and been slower to pull through.

Why is the British economy stuck in this rut? The historical economic explanation is not hard to fathom. Britain’s peculiar decrepitude is founded upon a greater dependence on aged capital in both the public and private sectors. But this historic atrophy in production and wealth creation doesn’t explain why so little political effort has gone into attempting to shake up its unusually outdated structures. Specifically, why has Britain’s political class of all stripes been so reluctant to make the hard choices needed for a better future?

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We are lurching from crisis to crisis

philmullan Creative destruction, Economic policy, Inflation, Productivity, The longest depression

The cost-of-living crisis is not just a question of increasing prices. The reason the current inflation can be considered such a crisis is that the UK has not been creating enough wealth for people to afford these higher prices. And while the recent dislocations and disruptions caused by the lockdown reopenings and the Russian invasion of Ukraine have had a huge impact on prices, the British government still seems incapable of acknowledging that things were not going well economically both before the war and before the pandemic.

Even when the current rapid pace of inflation eventually slows, many households will still be struggling to meet those higher prices of essentials like food and energy. And even if those particular costs began to subside, many people would continue to live on the edge, until the next shock sends them deeper into privation. These scenarios reveal that today’s cost-of-living crisis is not just a product of price increases.

Why have the increased costs become so unbearable for so many households? Why is there so little capacity at an individual, business or societal level to cope with these price spikes? Without addressing these historical issues underlying the current hardship, we are likely to see a continuation of crisis management rather than a durable fix.

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The end of the American century

philmullan Changing world order, Economic policy, Geopolitics, Rivalries, The longest depression

Many believe that the war in Ukraine will reverse or bring an end to globalisation. However, this is not the first time that globalisation has been declared dead. Obituaries were published after the financial crash of 2008, after the Brexit vote in 2016 and after the election of President Trump in 2016. Yet more obituaries were penned following the pandemic lockdowns and the accompanying disruption of global supply lines.

When a phenomenon is repeatedly declared dead, only to repeatedly survive, it should raise questions about the usefulness of the concept used to describe it. That certainly goes for the concept of globalisation. World economic developments simply do not follow an either / or, more-or-less logic of globalisation or de-globalisation.

In order to understand today’s economic developments, it is better to start not with globalisation, but with the idea that the world economy is always in flux – that the balance between international and national is always changing. We can therefore ask: which features in the world economy are likely to be magnified or sped up by Russia’s invasion and why? The most important impact will be the acceleration of the existing fragmentation within the world economy, both at the regional level and at the national level.

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The cost-of-living crisis has been decades in the making

philmullan Debt, Inflation, Politics, Productivity, The longest depression

The soaring cost of living, aggravated now by the fallout from the war in Ukraine, is bringing dreadful difficulties and hardship for huge numbers of people. This is the latest in a long series of economic crises which successive governments have been unable to manage effectively. How can Britain stop stumbling from one crisis to the next? By escaping from the sustained underinvestment and rising borrowing that have left Britain trapped in the Long Depression and that have robbed governments of the slack they should have to help people get through such challenges.

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