EDITOR'S LETTERMerryn Somerset Webb
“Whose Recovery?” That was the title of a speech given by Andy Haldane, chief economist of the Bank of England, a few weeks ago. In it he pointed out something that MoneyWeek readers know already and that Theresa May also appears to understand: that while UK GDP growth looks like it has recovered nicely since the financial crisis (GDP is up 7%, employment up 6% and wealth up 30%), the headline numbers cover up a good few miseries.
The first is that much of the rise in our GDP has been accounted for by population growth; GDP per head is up only 1% or so since 2009. The second is that our GDP numbers measure (as best they can) income from all UK activities. But that doesn’t mean, as Haldane notes, that all the income stays in the UK. Subtract the share flowing overseas (3% of GDP – a record high), and the income not distributed to households by companies (which save some revenue), and the truth is that average household income has “effectively stagnated” over the last seven years.
Chuck into that mix job insecurity (more people working part-time and on flexible contracts); lack of job satisfaction (the part-time jobs encouraged by our benefits system aren’t usually particularly satisfying); and the political focus on pensioners over the rest of the population (real incomes up 9% since 2008); and you’ll begin to grasp why a good number of people feel left behind. That’s particularly the case when you think further about the wealth numbers. Rising wealth is good. But only for those who own houses, stocks and bonds already (wealth is up 47% in London). If you don’t, it is bad (wealth is actually down in the north east) – or at least it feels bad. And society feels divided.
This isn’t exactly the first time this has happened. In the 1930s the old heavy industries were already collapsing and there was misery all around as a result. But those who had jobs, particularly in the “new electric and electronic factories” were seeing “genuine and rising prosperity” (I am reading a book called A Portrait of the Thirties, published in the mid 1970s by UK journalist and broadcaster Rene Cutforth). The question now is what we do about it today (spending billions on rearmament isn’t ideal as a solution).
There are clues in Haldane’s speech as to what he fancies policy-wise: “a material easing of monetary policy” and an end to austerity (“monetary policy can’t do everything”). And in our cover story, John looks at the clues we have had so far from May on what her government is likely to want to do. Falling asset prices are unlikely to be the answer (“material easing” mostly prevents this) and a proper debt jubilee isn’t either (see our interview with Steve Keen). But a degree of further redistribution of the gains of the last few years almost certainly is. Something, as John notes, for high earners, pensioners and property owners to think about.