A few points about the British growth slowdown

1. The BBC reports: “The Office for National Statistics (ONS) said the fall in output was largely due to a drop in mining and quarrying, after maintenance delays at the UK’s largest North Sea oil field.”

2. According to an FT account, output in the construction sector has fallen eleven percent over the last year.

3. Taking away those two problems, growth was about 0.7 percent, and 1.4 percent in the service sectors.  The service sectors represent about four-fifths of the economy.

4. Their relative shares in export markets are generally falling.

You can debate how much those numbers fit the pattern of an AD shortfall (I don’t see it myself, though there is room to make some of a case on the construction side), but what is remarkable is how many people don’t even want to raise these issues.

Comments

So if we subtract mining and quarrying, the oil industry and construction, and the economy is sorta aenemic?

Maybe if we subtract enough sectors, Britain can be a tiger.

Really just the oil industry and construction. The UK is enduring a sectoral decline in oil production, simply because less is coming out of the sea. It's hard to see how Replacing Austerity With Something Nicer can make more oil appear in the wells. It is easy to see how Something Nicer could increase construction spending, but if one assumes that construction is shrinking due to an earlier bubble-inflated output level, it may not be wise to borrow to fund investments re-inflating that bubble.

There was no supply bubble in UK construction pre-crisis.

While its fair for Tyler to raise his points, they hardly amount to a defence of austerity.

But there was in Spain, in part based on the price bubble of UK property allowing UK property owners to leverage that value rise into an attractive investment option in sunny Spain, where all the rich UK property owners would retire to. Not to mention the opportunity to vacation in sunny Spain in your own property, while renting it out the rest of the time, thus turning your cost into a profit stream.

Or not, as the case turned out to be. The ties between various booms in places like Spain, the UK, and Ireland are quite connected, as the money flowed in a familiar cycle, a narrative simply too good to resist. Until it was shown to be a fairy tale, at its utterly predictable ending.

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Regardless of whether it is correct, this type of analysis exemplifies once again the indeterminacy of the whole stimulus debate. Whenver the anti-austerity crowd sees an uncomfortable data point, they too can slice and dice the facts like this.

The "austerity is good" school can reasonably claim that 'it's too early to tell'? Is it not true that for the Austrian medicine to work, you need more time for the 'bitter medicine' to do its good work in an economy? How quickly can a pizza delivery boy from the old economy of pre-2008 be retrained to be a software-programming brain surgeon for the new economy of post-2008? At least 20 years, no? If so, Japan should be coming out of its AD recession right about now (it's been 20+ years since their crash of 1991)

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Though it is possible to do so, it *requires* little "slicing and dicing" to see the evident effects of austerity in the UK.

For the crowd wedded to austerity apology, though, it seems slicing and dicing can almost get you something apparently.

+1 It makes it sound like England has a compartmentalized economy--that growth (or no growth) in one sector somehow doesn't effect the other part of the economy.

On a brighter note, sales of Queen Elizabeth memorabilia were up 20% this year.

Long live the Queen.

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The service-sector growth also seems sluggish, so there aren't really any bright points here.

I'm just puzzled as I thought Cameron's austerity measures and the Bank of England's adherence to conservative economists' policy prescriptions would lead to fast growth.

TV,

"I’m just puzzled as I thought Cameron’s austerity measures and the Bank of England’s adherence to conservative economists’ policy prescriptions would lead to fast growth."

Why? Is AD growing rapidly? Export demand? Population? Productivity? Is export (or domestic) manufacturing (or service) production so profitable, that these sectors are attracting capital for expansion?

The UK fundamentals point towards slow growth. No policy changes have occurred (or are contemplated) that would change this.

Ditto for the U.S.

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Fast growth along the lines of which country, in a comparable position? Neighbours like France or Ireland are doing poorly as well.

Would Britain like to grow its GDP as quickly as America's? Then become a country with rapidly expanding oil/gas production rather than a country with rapidly contracting production. It is hard to figure out an alternative.

The UK may be in luck. One recent study predicted a large increase in production for the coming years: http://uk.reuters.com/article/2012/12/05/uk-oil-idUKLNE8B400420121205

Also, this was surprising: As a separate country, the US oil and gas industry would be the 16th largest economy in the world. Almost double the size of Saudi Arabia's economy. http://www.aei-ideas.org/2013/01/energy-fact-of-the-week-as-a-separate-country-the-us-oil-and-gas-industry-would-be-the-16th-largest-economy-in-the-world/

If optimistic studies were horses, wishes would ride.

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Jan,

How many optimistic studies can we find to make our day?

If optimistic studies were horses, wishes would ride.

Bill, you gotta be able to distinguish between fairy dust and the real McCoy.

Fracking is the real McCoy. Despite comically ham-fisted knee jerk environmental opposition, the data are rolling in in this country. Energy is a huge input to manufacturing. Guys like Obama know the score and have been pivoting nicely here.

There is nothing peculiar about American geology, but UK politics have been much more beholden to incoherent environmental/economic viewpoints that amount to shooting themselves in the foot and burning "sustainable" wood as biomass, for example.

Cheap, plentiful, safe energy is about as close as we get to an occasional free lunch in this vale of tears:

http://www.rationaloptimist.com/blog/shale-gas-could-cut-energy-bills-(1).aspx

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"adherence to conservative economists’ policy prescriptions"

Hey, let's not forget they raised taxes, too! It's Conservative by definition, but conservative is debatable.

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So, you are saying If your aunt had balls, she’d be your uncle.

That sounds reasonable. It certainly helps you focus your policy efforts on fitting your aunt with balls.

I've often thought that about Italy, which would be an export powerhouse like Germany if it hadn't neglected energy, a considerable drag on its balance of payments.

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Yes, but it's necessary because the anti-austerity crowd are advocating that the aunt should increase her testosterone intake to man up.

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"Outside of the killings, Washington D.C. has one of the lowest crime rates in the country." -- Marion Barry

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I'm guessing this post is supposed to be placed in the context of the austerity debate, but have we established that austerity -- defined as budget cutting -- has been implemented?

http://www.telegraph.co.uk/finance/comment/9819045/It-doesnt-look-as-if-Osborne-can-deliver-the-necessary-cut-in-public-spending.html

Austerity isn't reducing spending, it's reducing the rate at which you increase spending. Actually cutting spending would be, like, super-duper mega-turbo austerity.

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Have we established that austerity has been implemented?

There was an entertaining ding-dong here about it last year: http://marginalrevolution.com/marginalrevolution/2012/05/what-is-austerity.html

My impression is that "classical austerity" (which I define as cuts across the board), has not been implemented.

The state payroll has been cut quite significantly, while total spending has increased. An important part of the increase in spending is increased debt costs.

To sum up: no, I don't think everyone agrees what austerity is, but I'm happy with my personal definition of it.

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Seeing as most of the austerity is coming as cuts to public investment, how much of that construction decline is down to austerity? Is Perhaps Tyler is actually arguing that the economy would be growing without austerity ;)

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So, if what the UK is doing merits the label 'austerity' where does the concept of a balanced budget fall on this spectrum?

The UK Budget has racked up deficits of $580 billion over the past five years, including $90 billion in the 2012 budget (6% of GDP.)

So, being marginally less pusillanimous than most countries' politicians qualifies one for the mantle of vicious austerity wielder. Welcome to 2013.

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