The first was that the growth rate in GDP in the USA in the last 3 months works would represent 4.1% if it was sustained for a whole year. Not surprisingly this data was accompanied by yet another piece of fake news coming from Donald Trump. He told American voters that the first thing world leaders say to him when he meets them is “congratulations on your economy.” That is such an obvious lie that it shouldn’t need refutation. Angela Merkel simply isn’t in the habit of meeting Donald Trump and telling him how well he is doing.
Nevertheless, it is important that we recognise that 4.1% growth is a pretty spectacular figure and that countries like the UK would be very pleased to record anything like that level. For those who predicted immediate and unmitigated disaster from a Trump Presidency there is difficulty in explaining the data. Some of us took a more cautious view. I predicted shortly after he was elected that if he followed the economic policy agenda he offered during his campaign that it would produce a short-term boom and then a major slump. That is exactly where we seem to be heading.
Since the 2008 financial crisis central banks and governments have pumped billions or more accurately trillions of money into the economy and held interest rates so low that they have massively subsidised investors at the expense of savers. Ten years of such stimulus financing has never happened before. Incredibly the printing of these billions of pounds, dollars and Euros to help the finance system that caused our problems has been accompanied by such dreadful austerity for ordinary people like teachers and nurses that very little inflation has been produced. Nevertheless, ten years of stimulus financing has produced very rapid growth rates not just in the US but in China, South East Asia, Africa, and South America as well as a return to faster growth in the EU. It would be astonishing if the US was not growing rapidly after all those years of Obama pumping money into the system. It would also be astonishing if the first impact of Trump’s protectionist politics failed to produce some kind of boost to US jobs.
What counts, however, is how long the boom can be sustained for. Tariffs on competitor countries only provides a domestic stimulus until the retaliation kicks in. Much of the spectacular growth rate of 4.1% is in fact a statistical distortion caused by high rates of exports on foodstuffs that were about to be hit by tariffs imposed by other countries and which were shipped out in huge quantities just before the tolls were imposed. Next quarter the impact will be the exact reverse as sales of those goods will drop like a stone and growth will slow. If Trump carries on believing that he can put America first by putting other trading nations last then more and more parts of the US economy will start to hit problems with retaliatory tariffs and growth will slow not just in the US but across the world.
It may surprise a lot of people but most economists think that at the moment we are near the top of the economic cycle. What will happen if that cycle heads in the other direction? How many home owners can sustain their spending if mortgage interest rates start to rise? How many banks and financial institutions really have cleaned up their act and have balance sheets that are genuinely free of high risk high reward investments that could collapse in value once the economic cycle turns? How many tools are left in the armoury of Central Bankers and policy makers if there is any kind of repeat of the 2007-8 banking crisis? What fundamental structural changes to the system have been made since that 2007-8 crisis that would genuinely prevent a return of contagious financial panic?
All of which brings me to the second piece of important economic data. The UK’s Office of National Statistics revealed last week that last year the average household in the UK spent £900 more than it earned. That is the first time since 1988 that people have spent more than they’ve earned and they’ve done it by an incredibly scary number. Essentially the average UK citizen had to take on nearly a thousand pound of debts last year to get by. Since the elderly tend to have plenty of savings and not exceed their income it means that young and mid-career people have borrowed a lot of money to cover spending and are really struggling to cope.
The UK government keeps telling us that we are living through a great economic success story. Yet the UK economy grew by only 0.2% in the first quarter of this year. Using Donald Trump style economic projections that means the economy is growing by less that 1% at the height of a worldwide economic boom. If times are that hard for the average person in Britain at the top of the economic cycle what are they going to be like when the next downturn comes? How are we going to be placed after Brexit creates problems for our businesses, loses us jobs and pushes up prices? Where is the prospect of better times ahead when job security will return and the average working person will find themselves making ends meet with ease?
I am aware that there are very sound criticisms to be made about the problems that result from constant growth and the pressure it can put on the planet if we keep using up more fossil fuels, more trees, more raw materials, and we keep producing more plastic waste and more CO2. The concept of empty consumerist growth that damages the planet holds very little appeal.
There is, however, a real need to see change and innovation producing opportunities for people to do well in their lives. It is not helpful to tell people who have had ten years of austerity and have depended on pay day loans and zero hour contracts to get by that they ought to be less interested in consumer products. What we need to be achieving is to stimulate our economy by investing in a transformation of it towards a more sustainable model. There is plenty of room to provide people with more secure and better standards of living whilst seeing the economy prosper by moving over to technology that uses much less energy and produces much less pollution. There is no room for even low levels of growth if it comes on the back of investing in old fashioned dead end technology like fracking.
If you read the Conservative’s Industrial Strategy you will be hard pressed to see any genuinely coherent thought through approaches that could remotely warrant the name of a strategy. May’s policy seems to be to muddle through, pretend everything is fine and take us another week closer to genuine sustained economic decline.
Jeremy Corbyn does have an alternative to offer to this. It is to get out of the EU so that a Labour government is free to invest in heavy industry and bring about a return of proper working class jobs. To many in the traditional industrial heartlands of England that sounds very promising. There is just one problem with Corbyn’s approach. It won’t work. You can’t have a jobs first Brexit. You can only have economic decline. No country anywhere in the world is going to let the UK sell it products that have been made in subsidised factories. No country every prospered by making it harder to do business with its neighbours.
If we want to get out of the current mess we need to understand what the back end of the 21st century is going to look like and put all our energies into being the most advanced country at adopting the technologies that will be used in that era. That means investing in science, research, creative industries, alternative energy production and storage, and alternatives to plastics. It means supporting small businesses and online technologies. It means genuinely sustainable business practices and genuinely sustainable economic policies.
Donald Trump offers us sugar rush politics that will boom and bust. Theresa May bumbles along with no sign of a strategy. Jeremy Corbyn genuinely does offer a strategy and a serious attempt to use government to shape the future. It is just unfortunate that he bases much of that strategy on outdated ideas and an outdated vision of industry.
We are therefore in the sad and dangerous situation where the only place that you can find ideas being explored which stand a serious chance of building a long term sustainable set of policies that will get us out of this mess is in the margins of politics amongst organisations like the Greens. The only comfort I can draw from this is that those who focus on thinking about the future instead of trying to cling on to the past usually win out in the end.