And god forbid we ever face up to reality and take our gdp dibs!
But why put so much credibility in gov GDP stats?The 2007 was not our real peak, we were in a bubble blown up by massive amounts of debt.The 2007 GDP is not a sensible benchmark.----If you personally earn £500 per week, but take out a loan enabling you to spend £1000 for 4 weeks, but then after you run out of borrowed money you have to go back to spending £500 per week, that is not really a reduction, its "back to reality".We shouldn't take the peak annual spend and call anything below a disappointment, we should take a realistic benchmark of what we could afford averaged over 10 years or so.
Anon makes a sound point. GDP figures include all borrowing and are hence pretty worthless. Probably real national wealth has been in decline since the 70s when factories were still commonplace.
On the contrary: 2007 is a perfectly reasonable “benchmark” year.What happened prior to the crunch was that demand came to a larger extent than usual from a private sector credit expansion. And that expansion in DEMAND was NOT excessive: witness the lack of excess inflation. That is, the economy was well able to meet the demand.Thus if the credit expansion had not existed, then demand would have been lower (all else equal). But government / central bank (assuming they would have acted in a competent manner) would just have stepped in and boosted demand to make up for the demand lost as a result of no excessive credit expansion.
Ralph - There had been inflation: the reduction in quality of items that did not factor in Govt figures but necessitated consumers to upgrade in order to maintain standards. The increasing unaffordability of housing costs and rent for many. The 'DEMAND' clearly was excessive and I posit that was the reason why the credit crunch happened.Credit backed on a housing bubble - the raison detre' of this site.
The inflation figure Mr Musgrave refers to is itself an official one. The feature of the past decade has been the huge fall in cost of manufactures from China. That masked the true inflation rate. So our politicians could pretend to a gullable electorate that inflation was licked. I would suggest that if one looked at the prices of food, transport fares, housing, hairdressing and the like which are domestically produced then inflation was much higher than the figure we were fed.
Exactly right Davidb, 'inflation' was kept low by what a few years ago they were calling the Chinese miracle.This was partly a result of inferior product but largely currency manipulation. The unfortunately as international currencies rebalance the 'miracle' is going to turn into a nightmare as the inflation that was delayed hits us like a brick.Ralph, that demand was both excessive and temporary, as soon as the credit dried up the house of cards collapsed.The economy was not well able to meet the demand, most consumer products are imported...You're saying a 'competent' government would have forced up demand where there was no demand from the public, ie just create a lot of waste for no reason?Spend money we don't have on things we don't need.fkin genius!Thats why we're in this mess.
I am forever replacing lightbulbs. In that time of 'low inflation' I've replaced my phones and ansa-phones umpteen times - door bells, toilet seates ...other products too which are cheap to buy but just don't seem to last. Matches which break, Wagon Wheels getting yet smaller !!!I once bought a shirt from a leading retailer and took it back to find that it had been replaced by an inferior version but was packaged (and priced) the same. I've had to upgrade my purchases of many foodstuffs because the quality has deteriorated. Own brand budget Tuna is just mush nowadays.Petrol and energy costs have been rising inexorably.My wages have risen by 30% in 7 years (40% if you include my wife's.) By rights I should feel a hell of a lot richer but I'm not even treading water.There must be a reason why MPs were allowed expenses increase to keep up with inflation. In fact I think 'low inflation' was Labour's greatest con trick. As was Gordon Brown's 'grrrrrowth'. It was all a chimera. Otherwise why else are we in such trouble ?
Elektro-Kevin, Governments DO TRY to take into account the change in quality of consumer goods when calculating inflation. If they have significantly failed in this regard, then I’d like to see the evidence. Plus the quality of most consumer goods has vastly improved over the decades. Compare a new car nowadays to one from forty years ago. As for PCs, you get about ten times as much for your money compared to twenty years ago.Davidb, If imports from China rise by $X in a given year, and they are half the price of US equivalent stuff, that ameliorates inflation for that year. But continuing with that level of import has no effect on inflation in subsequent years (any more than cost reductions attributable to deploying the steam engine or internal combustion engine continue to ameliorate inflation). I.e. to gauge the effect of Chinese imports over the last ten years you have to look at the INCREASE in each year. And I don’t believe that is all that significant.Anon, “Spend money we don't have on things we don't need”. What’s that all about? The government / central bank machine can perfectly well raise demand without expanding the public sector. I.e it can enable households to purchase more bog standard consumer goods. Anyone who has got through a basic introductory economics text book knows how to do that.
Ralph M - I'm not talking about your one-off expenditures.I'm talking of the cost of day-to-day living which has been rocketting up despite help from China. A can of Coke is now 80p in my corner shop - my water bill now in excess of a thousand quid a year. These increases have been year-on-year. How (when) the hell did that happen ???That fridge freezer I bought for £500 quid six years ago ? Knacked. "Beyond economic repair. You've run it for six years ? Well lucky you. They're only designed to last five !"The Chinese 'miracle' has helped conceal inflation. That's all. All those goodies were bought on the back of a housing bubble which most definitely was excessive ...... as evidenced by the state of western economies now.They were not able to meet the demand, clearly.
Ralph: "What’s that all about? The government / central bank machine can perfectly well raise demand" temporarily raise demand, but over the long term we end up in a bubble that can't be sustained and we get a typical boom and bust.But besides why should the government raise demand?Who says the government knows what the right level of demand is?The government has no right to try to manipulate its citizens spending habits as long as they aren't doing anything illegal.
Britain's economic recovery failed to gain any traction in 2011. The latest figures suggest the economy grew by a paltry 0.9 per cent for the full year (it tailed off at the end of the year when it went into reverse by 0.2%)
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