With all this financial excitement I almost forgot that there was a real economy out there. Today, we had the unemployment number for August. It is climbing alarmingly, and should cross the one million mark either this month or next.Unemployment climbed 53 thousand last month. It is up 138 thousand since November last year, which was about the time that house prices started to crash.
What was that old sound bite from the dear leader? Nae mare booom n'bust.
14 comments:
Well, maybe no more boom, at any rate. "Aye, weel, ye ken the noo."
What's the true rate of unemployment, when you add the long-term lazy and the public sector idlers?
Nick
Nick
It is "something-mega" percent.
There is about 5 million working age people on some form of benefit, including the jobseekers allowance.
Alice
These unemployed ... not mortgage paying, erstwhile City support staff with relatively modest savings and assets perchance ?
What will this do to the housing bubble ?
Alice,
When Gordon Brown made the reference to boom and bust he was referring to the economy as a whole, rather than to one particular aspect of it, such as the unemployment figures or the housing market. If we take “bust” to mean a recession, then Brown has so far been quite correct. We have not had a recession since 1991 (unlike virtually every other advanced economy in the world).
As far as I’m aware there is no technical definition of a boom. However, if a recession is defined as the loss of all economic growth from trend, a not unreasonable definition of a boom might be GDP rising at double its annual trend rate. On this definition, we have not had a single year of boom, or indeed anything close to a boom. In fact, growth has been within 0.5% of trend (currently estimated at 2.75% by the BoE) in 1999, 2001, 2003, 2006, 2007. In the remaining years it has been either mildly inflationary, or mildly deflationary.
Of course, all advanced economies have seen a flattening of the amplitude of the economic cycle over the last 15 years, but Britain has benefited more than all other economies in this respect. So, I would argue Brown’s prediction of “no more boom and bust” has so far proved correct.
Young Mark
Call him Canute. Or something similar...
Rentergirl
"If we take “bust” to mean a recession, then Brown has so far been quite correct"
While your post is a reasoned attempt, it's wrong. Recession isn't two quarters of negative growth or any other GDP measure. It's a confluence of factors that doesn't get officially confirmed until its too late to matter.
It's very reasonable to say we are in a defacto recession now from analysing these factors ourselves, be it TED spreads, equity falls, unemployment, order levels and so on.
IMHO the recession started Q1 2008 in the UK.
But the general point that the Goblin King could even utter the words "end to boom and bust" is ludicrous. It is impossible NOT to have boom and bust when you have fractional reserve lending and the credit cycle. Even that clown ought to have known that. As he should've known the long period without a bust was based on kicking the can down the street and guaranteed an almighty collapse.
To say we've not had boom and bust yet is like jumping out a plane without a parachute, enjoying the exhiliration of the fall and figuring that you haven't hit the ground so the future is rosy.
Nick
what's the rate if include financial sector shitesters?
Nick,
Your definition of a recession seems somewhat at divergence from the traditional definition. Doubtless your definition means no more or less than you intend it to mean, was different last week and will be different again next week. If you don’t mind I’ll stick to the traditional definition of two consecutive quarters of negative economic growth. So far we haven’t even had one consecutive quarter of negative growth.
Young Mark
Young Mark,
I'm afraid you've swallowed the hype on the "two consecutive quarters" point. That is not even the official definition. It's just something bubblehead pundits use to deny the recession.
Pretty much everything I say is somewhat at divergence from the traditional definition, be it inflation, growth, unemployment, trade flows, deficits etc. That's because I'm mostly Austrian rather than a post-Keynesian fool like most "economist".
It's also why my predictions have been mostly right for the past year.
Sure, disagree with me. I don't want to live in an echo chamber where everyone agrees. But don't expect the "divergence from established experts" line to help support your case.
Nick
Nick,
There are many definitions of a recession, but they all involve one characteristic – contracting economic output – in other words falling GDP. The two quarter definition is merely the most commonly accepted variant. Recessions may be accompanied by falling equity values, falling house prices, rising unemployment and a host of other symptoms. However, they are no more than symptoms. The primary characteristic of a recession is falling GDP.
This is what Gordon Brown had in mind when he uttered the phrase “no more boom and bust”. Otherwise he would have said “no more boom and bust, according to Nick’s highly personalised definition”. Specifically, he had in mind the recessions of 1981 and 1991 and the intervening Lawson boom. Both these recessions saw falling GDP – a horrendous 6.4% in the eighties and 3.4% in the nineties.
As I said in my original post, there is no technical definition of a boom, but I think you can safely say it involves growth at well above trend rate, as happened in 1985 and 1986. Astonishingly, in the following two years, it ran at over double the trend rate.
So, as I said in original post Brown was quite right and saying we had had boom and bust in the past, and has been correct in predicting their absence these last ten years.
You say that your definitions are “at divergence from the traditional definition” and that your “predictions have been mostly right for the past year.” This is hardly surprising since your infinitely malleable definitions mean no more and no less than you intend them to mean, at the time you intend them to mean it!
I see Man United won last night. The score was 0-0, but I’ve redefined this as a win for the reds. In fact, whatever the score was, it would have been a win for the reds. So Nick, my football predictive powers are quite as accurate as your economic predictive powers.
Young Mark
Young Mark,
Some wise words. Some not so wise.
"they all involve one characteristic – contracting economic output – in other words falling GDP"
Theoretically yes. In actuality there's real measurement problems due to the fudged numbers, and timing problems due to numbers being AFTER the quarter end and usually significantly revised even later. So while true, the GDP version isn't much use. You need leading indicators.
"they are no more than symptoms"
No. No. No. Falling GDP is the symptom of economic contraction. It's just an arbitrary measurement that is kinda adequate in the absence of better ones. A recession is NOT falling GDP. It's an economic contraction, of which GDP is both symptom and inadequate measure.
“no more boom and bust, according to Nick’s highly personalised definition”.
That's just a straw man. Brown was just talking political drivel. He probably barely understood what he meant, much less meant what your revisionism wants it to mean.
Your definition of boom is reasonable. I'd prefer one closer linked to credit expansion, seeing as that's the root cause, but yours is ok.
Read Rothbard or Von Mises if you want to know my definitions. They aren't maleable. Even better, read Mish because he's doing it in real time.
As for predictions, just go back through my past 12 months of comments and judge for yourself. They weren't vague or non-committal.
For example I seem to remember calling for Lehman's, Countrywides, Merrill and Fannie and Freddie to go under. I got some wrong too, so feel free to point them out.
Nick
"What's the true rate of unemployment, when you add the long-term lazy and the public sector idlers?"
Last time I looked, about 25% of the adult population was engaged in private sector work.
Though this did not include pensioners who were working after retirement age.
Just remember folks, unemployment is a trailing indicator.
We are in a recession because unemployment is rising and it rises only after one has started.
We have been in a recession for a few months before this.
The 2 quarters of negative GDP growth has so many problems these days due to Government wishing to "goose" the indicator. Even if they didn't, by the time the recession is recognised, it could be 2-3 quarters after it started.
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