US is not closing the gap – and neither is the UK

The US and UK economies may be growing in real terms (after inflation) at about 2.0-2.5% right now, but both are still experiencing the weakest post-war recovery in GDP growth ever.   Look at how the US economy has done since the Great Recession began in 2008.  The subsequent ‘recovery’ is still way weaker than trend growth was before the global slump (red line).  And it is still below potential growth at full capacity, as measured by the US Congressional Budget Office (blue line).  The gap between previous trend growth (red line) and future potential growth (blue line) is bad enough.  But even the gap between potential growth (blue line) and actual growth (black line) will not be bridged until 2016 and there is no chance of returning to where pre-crisis trend growth (red line) would have taken GDP for the foreseeable future.

Closing the gap in output potential

The relative weakness in this recovery is also revealed by how long it took the US economy to get back to full potential growth after the deep double-dip recession of the early 1980s; namely about three years from the trough in 1983 (see black line compared to blue below).  In this current slump, it is now five years since the trough already.

The 1980s recession closed the gap

Indeed, the official US forecasters have had to reduce their expectations for recovery every year.  In 2007, the US economy was on trend to reach $16trn real dollars by now  (black line); in 2010 the trend fell so that $15trn was the maximum that could be achieved by 2014 (green line); and in 2013 that was revised down again to $14.5trn (red line).  But real GDP has failed to meet any of those trend targets and currently stands at $13.5trn (blue line).  It is not closing the gap.

Plosser on the gap

It’s the same story with ‘booming’ Britain.  BoE governor Mark Carney is now saying that the UK economy is heading back to ‘normal’ and forecast 3.4% real growth this year, dropping back to 2.7% from then on.  If that is normal, then it is a ‘new normal’.  Recoveries in previous recessions in the UK led to real GDP growth hitting 6% by the mid-1980s after the slump of the early 1980s (black line).  After the recession of the early 1990s, the UK economy recovered to a 5% growth rate by 1993 and stayed above 3% a year until the end of the decade (red line).   But in this recovery, after four years, growth has been under the long-term trend rate of 2.5% and is not expected to exceed that rate for the foreseeable future (blue line).

UK recovery

In previous recessions, the gap between actual growth and maximum potential was eventually eliminated within 5-8 years – long enough.  But this time, that gap has no prospect of being filled.  The UK economy has wasted its potential for the last five years and will continue to fail to make up lost ground.

Uk recovery 2

 

 

 

 

13 Responses to “US is not closing the gap – and neither is the UK”

  1. Neil 63 Says:

    Isn’t it high time that more Marxist economists started questioning the shibboleth of perpetual growth? What I wonder is the point of not only pointing out that growth in large parts of the developed world is apparently permanently slowing, but also lamenting the fact!

    • michael roberts Says:

      Neil, You have a point. Capitalism is a system that is rapacious and destroys the planet’s ecology and resources for profit. But the human population is still rising and billions are still in poverty and under exploitation, so an increased output of things and services is necessary but, of course, much of that could be done more efficiently, equably and without destroying the planet with a different mode of production and an end to the class system. Nevertheless, the concentration on what is happening to economic growth helps reveal how capitalism gets into recurrent crises, wars etc and cannot deliver even on growth i.e its failure as system for human need.

      • Neil 63 Says:

        Thank you for your reply Michael, however I remain unconvinced that:
        (a) technological-driven growth, equity, and environmental sustainability can ever be conjoined;
        (b) growth (in the sense that we have learnt to understand it under capitalism) is a prerequisite for the satisfaction of human *need* (as distinct from ever-increasing human *wants*);
        (c) universal material abundance or prosperity in the possession of manufactured goods and associated services is ecologically feasible *under any mode of production*;
        (d) at our current level of global production growth is a better and more efficient means of distributing benefits to the poor than overall redistribution, *even under conditions of population growth*; and
        (e) the proper goal of a communist society is universal material prosperity or, to put it another way, that material abundance is a necessary and sufficient condition of the good life.

        Although I see a lot of merit in Marxian political economy (the reason I enjoy reading this blog) in understanding class struggle and crisis, the irony is that because of (in its orthodox versions) its uncritical adoption of the fundamental tropes of modernity it’s ended up – in my view – with as bourgeois and materialist a worldview as the system it sets out to critique.

        The problem as I see it, is that orthodox Marxist economic theory in my has not caught up with the ecological and socio-cultural challenges our societies face.

      • Falling Rate of Profit Says:

        Neil:

        a) Why can’t growth and sustainability be conjoined? Reliance on fossil fuels and environmentally damaging technologies are a product of capitalism, not some immutable law of all societies.

        b) Growth in terms of output is certainly required if there is a growth in population. How this could shift in the future, or in a future way of coordinating production, remains to be seen.

        c) Same as a). Sustainable energy is a real possibility. But, so long as science remains subject to the needs (mostly short-term) of capital, this potential is only latent.

        d) This is the neo-liberal/Keynesian divide. Those who aim for a new mode of production need not pick a side.

        e) Freedom from need is not an admirable goal? Freedom from need would not be the end of labor, only the end of necessary labor.

        I guess by “tropes of modernity” you are referring to the desire for free access, which entails some level of technologically-driven production. The problem as you see it, is that this “modern” notion comes into conflict with the impending “post-modern” ecological catastrophes. I reiterate that technology and production in their current forms are under the thumb of capitalist production. Any movement to organize production on another basis would have to immediately look to the reconfiguration (or wholesale abandonment) of modern reliance on fossil fuels and alternative and sustainable methods of production. But the current methods are not the only methods and increased production does not, by necessity, entail environmental devastation.

      • Abraham Says:

        Green energies are being developed and utilized under capitalist production.

    • Neil 63 Says:

      Interestingly -in light of my previous comment -I’ve just stumbled across the following in a review of ‘The Oxford Handbook of the History of Communism’:

      “Slavoj Žižek’s thinking on the current state of communism is centred on an examination of the blatant similarities between communism and capitalism … Žižek suggests that this is a problem intrinsic to Marxist ideology. In his 2001 text, The Fragile Absolute, Žižek writes that “Marxian Communists” have been guilty of succumbing to “a fantasy inherent to capitalism itself” based on “this notion of a society of pure unleashed productivity.” In Capital, Marx argued that this kind of society depended on the generation of surplus value through the exploitation of the labor force. In other words, Marxian Communists couldn’t possibly expect unbridled productivity without exploiting their citizenry. Žižek proposes that we recognize that productivity depends on exploitation, which must be at odds with the dream of communism engendering undreamt-of prosperity. Envisaging an alternative model for communism, he writes: “what we need today is […] a return to the ‘critique of political economy’ that would reveal how the standard Communist project was utopian precisely insofar as it was not radical enough — in so far as, in it, the fundamental capitalist thrust of unleashed productivity survived, deprived of its concrete contradictory conditions of existence.” He argues that the challenge today is to abandon this fantasy without succumbing to some kind of “pre-modern” existence.”

      • michael roberts Says:

        I dont agree with Zizek that Marxist ‘ideology’ has a fetish with ‘pure unleashed productivity’. Marx was very clear that part of capitalism’s contradictions was its destruction of the environment for profit based on exploitation of labour and nature. Zizek raises a red herring in his usual attempt to distort Marxist ideas. Productivity would not be based on ‘exploitation’ under communism as exploitation is a particular social relation under capitalism where capital exploits labour. I refer you to the work of Richard Smith in, I think, in explaining how Marxist views are entirely compatible with not only breaking with the exploitation of labour but also in managing and protecting nature, unlike Soviet Russia, China now, or capitalism. See http://www.paecon.net/PAEReview/issue64Smith64.pdf

    • Abraham Says:

      I think that those were the positions of Malthus. Now they reappear in a more modern form and new arguments, but as falacious as the classical malthusianism.
      In my opinion the productive activity can damage the environment under any mode of production. It is not an issue of capitalism versus communism.
      Now, what measures do you think should be taken in this matter? I don’t think that such a thing as degrowth or stagnation is a very rational response.

  2. henry Says:

    Michael,

    What is the message? That the US can not be the growth engine of the world economy as it was before 2007? So something changed fundamentelly since 2007? See the attached book review in the L.A http://lareviewofbooks.org/essay/vicious-disequilibrium.

  3. henry Says:

    Michael,

    The attached article makes the abovementioned point very clearly:
    http://yanisvaroufakis.eu/2012/11/10/a-world-without-the-global-minotaur-why-is-the-world-economy-failing-to-recover/

  4. johnlewisgrantj Says:

    Call me old-fashioned, but I believe that social and economic “activity,” for want of a better word, is law-governed. So the capacity of late-stage capitalism (not a vain hope, I trust, implied in this terminology) to re-invent itself is interesting to me. This is the first recession/depression from which capitalism has NOT emerged in a “new and improved” form. Or, so it seems.

    So Michael (and many other mainstream economists) are asking the obvious question: what is different this time? Is capitalism running out of steam? (Probably not!) Is it morphing into a new even more effectiely exploitative form? (Probably yes.)

    On socialism and the environment. Call me old-fashioned here, too. In my old-fashioned view, the former USSR was, in many useful senses, a “socialist” economy; but even its most rigid adherents must acknowledge that the experiment never quite got off the ground (many huge issues). The environment, we now know, was a major issue for the former USSR. Thus, quite apart from the theory of Marxism and socialism, which the poster above references, the practice of socialism (in its nacent forms) has not been promising. Not that capitalism is or will be any better. But I think it’s legitimate to ask, therefore: “Does the transition to socialism (if and when it actually occurs) necessarily imply more environmental sanity?” Excellent question, really, although as matters stand, the answer may come too late anyway.

  5. Herbie Destroys the Environment Says:

    First up, I agree that there is little current evidence that socialism will deliver better environmental outcomes than capitalism. Imagine we have a world socialist revolution, and it establishes a world government etc. How will this government deal with uneven development? Socialism will face the same problems as capitalism when it comes to environmental matters. These issues are too important to imagine socialism can produce a magic wand and make these problems disappear.

    But socialism can address capitalisms penchant for consumption without responsibility, food waste would surely not be as high as under capitalism, and waste in general for that matter. Surely socialism will produce human beings who think twice about travelling by car; as opposed to people thinking it is their divine right no matter what the damage, as happens under capitalism.

    But changing the mindset of people will take a long time, and even then we have a chicken and egg situation, which means you need people to have a different mindset in order to bring about change but you need change to bring about a different mindset. This appears a fundamental contradiction, but I will remind people that there are chickens and there are eggs!

    This is how I ultimately view communism, not as delivering abundant goods on tap but re-wiring the human brain so that unconscious consumption becomes a thing of the past. That consumption becomes conscious. So communism is the conscious integration of Production>Distribution>Exchange and Consumption.

    From this all things will flow…

  6. vallebaeza Says:

    Reblogged this on Alejandro Valle Baeza.

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