See No Evil

The collapse inward Britain productivity since the recession is extraordinary. Here is a nautical chart from the OBR (pdf), showing how much lower potential output is estimated to live compared to estimates made simply 6 years ago.

    Chart 3.7: Potential output relative to the Treasury's Budget 2008 forecast

According to the OBR, nearly 14% of output has been permanently lost, because underlying productivity has stopped growing over the concluding half dozen years. This is unprecedented. As I accept shown inward posts, Britain gross domestic product per capita has shown almost constant tendency growth since the Second World War - until now. Not alone is this ‘sudden stop’ inward productivity unique inward recent Britain history, it is likewise a turn down that is quote Tim Harford: “So allow us applaud George Osborne for playing his ain game good – a game inward which economical logic is an irritation, the national involvement is a distraction, in addition to political party politics is everything.” Yet it should live noted that this sort of mental attitude tin alone operate inward an surroundings where the authorities has substantial command over much of the media. I made fun of this here, but it is a serious abrogation of democracy.

  

All this would thing less if actions revealed some coherent analysis in addition to serious elbow grease to bargain amongst the problem. One widely held theory, championed past times the late appointed Deputy Governor of the Bank of England Ben Broadbent, is that the productivity collapse has something to practise amongst what has happened to the UK’s major banks. This is sure something LibDem Business Secretary Vince Cable worries about. Yet the government’s attempts to practise something inward this area, although welcome, accept been modest, in addition to these measures accept had no noticeable touching on on productivity. You would live forgiven for non knowing that the solid reason currently owns a large purpose of the Britain banking sector.

Another possible explanation for the productivity puzzle is subdued investment, in addition to the demand for many productivity improvements to live embodied inward the cast of novel capital. The budget did growth investment allowances, doubling the allowance introduced at the halt of 2012. But the existent question, which I asked dorsum inward 2012, is why all this was non done much earlier. It is respectable to believe such measures are ineffective or inefficient, but this budget indicates that is non the Chancellor’s view. So why non innovate these incentives when the recession was at its worst, rather than when growth is recovering? It is simply some other manifestation of the austerity U turn.

George Osborne’s twin obsessions are winning the adjacent election in addition to reducing the size of the state. However mayhap he should likewise worry most his legacy. There are 2 possible verdicts that history volition bestow. The first, in addition to to a greater extent than optimistic, is that the OBR is wrong. There volition live a long in addition to vigorous recovery such that over the adjacent decade the economic scheme does recover the the world it has lost. The inquiry economical historians volition thence enquire is why the recession lasted thence long, in addition to George Osborne’s austerity volition live upward at that topographic point equally a major explanation. He volition live remembered equally the Chancellor who helped practise the longest recession the Britain has always had. The instant possibility is that the OBR is right, in addition to this productivity has been lost forever. In that representative historians volition search inward vain for his analysis of the problem, in addition to grade him downwardly equally the Chancellor who presided over a disaster in addition to pretended it was non happening.