Last week’s release of the gross domestic product figures for the US economy in the second quarter of 2011 was a shock to supporters of capitalism. The US economy achieved an annual growth rate of just 1.3% in Q2’11. Translating those figures into quarterly numbers, that means the US grew by just 0.1% in the first quarter and by 0.3% in the three months after that. Even worse, personal consumption was stagnant. Even more worrying was that figures for previous quarters were revised downwards. As a result, the level of real US GDP is now found to be $216bn lower than previously reported. Most signficant, the level of US GDP in Q2’11 remains below its peak before the credit crunch and the Great Recession reached back in late 2007. The US capitalist economy still has not recovered to its previous peak after nearly four years.
The revisions in the data reveal that the Great Recession was even greater than previously thought. US real GDP fell from peak to trough by 5.1% rather than 4.1% as previously estimated. Indeed, in early 2009, the rate of decline reached 7.8%! And the components of that GDP also showed how severe the Great Recession was. Personal income fell 5.8% from a peak in Q2’08 to a trough in Q3’09, that’s more than double the previous estimate. But most interestingly, corporate profits were revised upwards. Now the level of corporate profits is 8.7% higher than reported before. The Great Recession hit corporate profits, but the main price was paid in reduced incomes for average Americans and in lost investment and jobs.
Big business has been the only beneficiary of the recovery so far – as befits a capitalist economy. So it should be no surprise that investment in new equipment and plant by businesses is beginning to accelerate, even though consumer spending has stalled. With American households still struggling with heavy debts, falling real wages and high unemployment, it is no wonder that they stopped spending more in Q2’11, now that the tax credits in previous budgets have been ended.
But it is not just the US capitalist economy that is slowing. The other great ‘Anglo-Saxon’ economy of the UK is also in trouble. It has grown just 0.7% in the past 12 months, although well into the second year of recovery after one of the deepest recessions of the past 100 years. And now the recovery will be the slowest in nearly 100 years. At this rate, the UK’s GDP level will not return to its previous peak until 66 months later or 2014!
So there we have it. The Keynesians argue that the UK and US economies will slip back into recession if the Republicans have their way on spending cuts or if the fiscal austerity measures of the Conservative-Liberal coalition continue to be applied. For them, the level of debt is a red herring. In contrast, the Austerians argue that ‘profligate’ government spending and high debt levels will mean that the US and UK economies will struggle to grow. It seems that this argument is a bogus one between two wings of mainstream economics. For the outcome is that both profligate US capitalism and austerian UK capitalism are growing at a snail’s pace and have not yet returned to the level of GDP achieved before the Great Recession, however much has been spent or saved by government.