It’s January, which means that hot on the heels of the end of year lists and reviews, tis the season of predictions. One of the more notable ones is the Financial Times survey of economists, which asks leading economists about the state of the economic recovery, inflation, housing prices, etc.
This is the third time the survey has run in this form, and it’s interesting to go back and look at previous years. Looking at 2011, I can’t help but notice how optimistic many people were about the state of the economy. There’s a general feeling that the recovery won’t be fast, but that it’s definitely underway. Growth was likely to slow, but a slip back into recession was deemed unlikely. “Chances of a true double dip remain low” says one. “The recovery does seem to have some reasonable momentum behind it and a double dip looks a remote possibility” says another. Others thought recession was a 50/50, but only one economist out of 78 doubted the recovery entirely.
As it happens, the economy see-sawed through 2011, growing one quarter and declining the next, and finally succumbed to the infamous ‘double dip’ in 2012. By then the economists had changed their tune, and ‘deterioration’ is a word that features repeatedly throughout the 2012 survey results. “Households borrowed too much and banks lent too much” said Nicholas Barr of LSE, “both sectors will continue to retrench. Deterioration is more likely than improvement.”
What of 2013 then? It’s somewhere in the middle. There are hopes that the economy will recover, but nobody expects it to be anything other than slow. Many suggest we’re on something of a plateau: “we will be bumping uncomfortably along the bottom” says one, another says the economy will “plod along near zero”. Vicky Redwood of Capital Economics says “we simply do not see where meaningful growth will come from next year.”
Perhaps there’s a consensus forming that this is not a simple recession, that something is different this time round. Some might want to call it a depression – there are certainly some similarities between our current situation and the Great Depression of the 1930s. The economy dropped lower then, but recovered faster. Five years on from the 1930 crash, the economy had made up all the losses and more. We’re nowhere near that.
Others have declared an end to the era of growth altogether, and that we should get used to a flat economy as the new normal. Richard Heinberg went ahead and called it in his book The End of Growth.
Being an optimist, I’d like to believe that there’s a slow evolution going on in our economics. The first hurdle was to accept that the economy wasn’t going to bounce back to growth any time soon. We may have cleared that one. The second hurdle is to ask how much that matters.
That’s where we need to go next, asking some new questions, looking again at our assumptions. We might find that growth isn’t as essential as we thought, or not in the ways that we expected. For example, GDP growth doesn’t always deliver rising incomes. Neither does it necessarily raise people out of poverty. It might not be necessary for job creation either, given that unemployment figures in Britain improved this year while the economy stalled. We know from Japan’s example that an economy can continue to function on a plateau for decades without catastrophic losses in quality of life.
There are two ways to see this waning of economic growth. We can see it as ‘falling behind’ in the mythical global race that David Cameron referred to again in his New Year’s message. Or we can take a broader view of it – perhaps it isn’t stagnation or collapse, but maturity, an economy coming of age. Nothing in nature grows forever, after all. We reach adulthood and stop growing. Is the economy, which can only exist within the bounds of the biosphere, outside the rules that govern life on this planet?
As I’ve written about before, that doesn’t mean we can be complacent about the economy. But we need to start asking some bigger questions about what the economy is for and what we want it to do for us. Those questions have been unwelcome in economics circles for some time, but I think we’re creeping closer all the time.