What Lies Ahead: Accelerating Growth or Secular Stagnation? | Andrew Kliman in E-International Relations

Andrew Kliman, author of The Failure of Capitalist Production: Underlying Causes of the Great Recession (Pluto, 2011) has written an article, published in E-International Relations entitled ‘What Lies Ahead: Accelerating Growth or Secular Stagnation?’.

We’ve reproduced the first few paragraphs here, but you can read the article in full on E-International Relations, by clicking here.

To find out more about Andrew’s book, The Failure of Capitalist Production, simply click on the cover image below.

Andrew Kliman

Kliman T02570Recent statistics indicate that the second round of the double-dip recession in the Eurozone and the United Kingdom has ended, and that economic growth in the United States has improved.[1] Not surprisingly, policymakers have used the new data to declare that the economy has finally turned the corner. For instance, José Manuel Barroso, president of the European Commission, said that “[t]his is a turning point for the EU [European Union] economy. The EU’s hard work is starting to pay off and growth is slowly coming back.”[2]George Osborne, the UK’s Chancellor of the Exchequer, declared that “The plan is working …. The job is not yet done but Britain is moving again.”[3]

The Eurozone Recovery

There are some good reasons to take such pronouncements with a pillar of salt. Beginning with the Eurozone, although the recession there has ended in the technical sense that real, or inflation-adjusted, Gross Domestic Product (GDP) has increased for two consecutive quarters,[4] this is a crude measure that ignores other dimensions of economic activity such as employment. The Eurozone’s unemployment rate has remained stuck at its 12.1% peak level for eight straight months (through November).[5] Prior to the crisis, it stood at 7.6%.[6]  Furthermore, the rise in GDP is quite small—0.9% at an annual rate during the second and third quarters of 2013–and forecasts suggest that growth will be even more sluggish in the medium term. PIMCO, the giant U.S. securities-investment firm, expects Eurozone GDP to grow by only 0.25% to 0.75% over the next year.[7] It should also be borne in mind that the rise in GDP is an average that does not reflect the economic performance of the Eurozone as a whole. Germany’s GDP grew at an annual rate of 2.1% during the second and third quarters, but France, Spain, Italy, and of course Greece and some other smaller economies have not yet emerged from recession––even according to the “two consecutive quarter” rule of thumb. [8]

More importantly, an end to “recession,” as economists define it, doesn’t mean much. It doesn’t mean that the economy has returned to normal, or that the financial system in is good shape, or that the outlook for the future is favorable, or that economic activity has made up the ground it lost during the recession. It means only that economic activity has stopped falling and is now rising––to some degree.

In some countries, GDP has indeed surpassed pre-crisis levels. In the U.S., GDP in 2013 was 6.0% higher than in 2007; in Germany, it was 4.2% higher; in Japan, it was 0.8% higher; and in France, it was 0.7% higher. But GDP remained 1.7% below the 2007 level in the UK; 6.0% below in Spain; and 8.6% below in Italy.[9]

The United States’ Recovery from the Great Recession

To get a sense of how sluggish the recovery from the Great Recession has been, consider the clearest “success story” among these economies, the U.S. In contrast to the Eurozone economies, its financial crisis came to an end four or five years ago, and the austerity policies that have hampered economic growth in Europe have not been imposed in the U.S. On the contrary, its fiscal policy has been wildly expansionary. Between the end of 2007, when the U.S. recession began, and the end of 2013, its public debt rose by $8.1 trillion, or 88%, or about $4400 per person, per year, for six years.[10] Some of the additional debt has funded additional government spending, while the rest has covered reductions in taxes that have boosted personal consumption and other private spending.

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