But not only did we in Whitehall fail to see the crisis coming, we failed in anticipating its long-term impact. We expected unemployment, repossessions and business insolvencies to surge, just as we had seen in the recessions of the 1980s and 90s. But none of these reached anywhere near the levels seen in the past. Repossessions peaked at a lower level than in 1991; the annual rate of business liquidations remained well below those seen in the 1990s; and unemployment fell just half as far as it had in the 1980s. Some groups, including black men and the young, paid a heavy price, but the infamous 3 million unemployment figure that scarred Britain in a previous recession was never breached.
In contrast, not a single Whitehall meeting I recall remotely anticipated the colossal pay squeeze that would see real earnings fall by over 10%. We should have spotted earlier the changed dynamic of a flexible labour market, very low interest rates and a big depreciation of the exchange rate, which fed quickly through into the higher inflation and lower living standards still evident today. Had we done so, we might have recognised earlier that employment levels were understating the economic damage being done and, for example, pushed harder against opposition to more radical action from Mervyn King, then governor of the Bank of England.
The first is because of the second you idiot.
Recession = GDP falling. GDP = all incomes. Recession = someones’ incomes, somewhere, falling.
Either 10% of everyone lose all their income through unemployment or everyone loses 10% of their income through falling real wages.
The performance of real wages and unemployment in this recent recession is a fucking success. Fool.
There are indeed some puzzles we lack definitive answers to, such as why our productivity levels are flatlining.
Sigh. We know this very well. Output’s not much higher than it used to be, about the same number of people are in employment. Given that productivity is output divided by hours in how could this be any different? Again, this is a fucking success. Fool. Instead of unemployment soaring productivity fell.