The longest depression

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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A post-Covid boom? Not so fast

philmullan Covid-19, Economic policy, State intervention, The longest depression

Some pundits are getting a little carried away by the signs of a rapid economic bounce-back. The uniqueness of the past year has distorted the data, creating a misleading impression of our economic prospects. We would be well advised to be more sceptical than usual about the economic stories being told.

The biggest worry is that politicians will overinterpret the contemporary statistical fog in a way that allows them to evade the deeper, more substantial economic issues they should be addressing. We have been complacent for too long about the state of the Western economies. If we get too excited about high growth rates and other anomalous data, we are much more likely to waste the opportunity for real change thrown up by this crisis.

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Another crisis wasted

philmullan Economic growth, Economic policy, Productivity, The longest depression, Zombie economy

At El Alamein in 1942, British forces secured their first military victory of the Second World War. Winston Churchill assessed that Britain and its allies had ‘perhaps’ just reached the ‘end of the beginning’ of the war. But that didn’t stop him and other Western leaders starting to plan for life after the war. In Britain the government’s Beveridge Report was published in November that year, paving the way to the expanded welfare state that became a hallmark for the postwar domestic settlement. Less than two years later, with Allied armies only weeks into fighting their way across Europe and still heavily engaged in the Asia-Pacific theatre of war, their countries’ representatives convened in New Hampshire’s Bretton Woods. There they charted out what became the postwar international economic and monetary architecture that operated for the ensuing quarter century.

These ambitious initiatives remind us that huge crises, such as our coronavirus pandemic, used to be seized as opportunities to undertake radical longer-term planning. Judging by this week’s UK Budget package, this is not the case anymore. Times like this demand bold economic thinking. Rishi Sunak has squandered that opportunity.

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