Thursday, 14 May 2009

Recovery: It's Not a Geometric Question

Duncan picks up the ball from Stephanie Flanders with a thought provoking post on the geometry of recovery – will this be a ‘V’ shaped recession, or a ‘W’ shaped one and so on. (Steph’s going with a square root shaped one apparently. Willem Buiter goes one better and offers a moving sine wave graph. You regret asking now, don’t you?). Dunc makes the fair point that he’ll judge the recovery by the (un)employment figures.

Well, yes, partly, of course. If a social democratic government can’t minimise unemployment it really isn’t much use for anything at all is it? (Not that I accept that New Labour is a social democratic government, but that's a matter for another time...). But I understand economists describe unemployment as a ‘lagging indicator’- not, you may be surprised to hear, anything to do insulating your boiler, but simply a reference to the fact that first comes the crisis then comes the unemployment some time later. So whatever happens, unemployment is going to go up whether or not those green shoots really do constitute a recovery. So this is going to be weak ground for any political party to stand on over the next couple of years. "Yes, unemployment is really high but it would have been higher under the other lot", is going to sound particularly fatuous coming out of the mouth of a Labour canvasser on the doorstep.

Rob asks a perhaps more pertinent question - and in the Times no less: What is Britain For? The fact that I utterly reject his Spiked influenced answer - he's totally blind to the catastrophic climate implications of getting behind technological 'innovation' in Big Pharma and aerospace, and has a touching faith in 'leadership' - doesn't mean it isn't the right question.

A long time ago someone patiently explained to me that the function of downturns in the business cycle - even severe ones - was to destroy unproductive capital and realign investment into new channels to lay the basis of further expansion of the economy. Or so the theory taught in Econ 101 has it. In real life stuff is more complicated, I know. But a party that wants to ride out this crisis has to be able to explain how we're going to live in the future if the 'old way' of living off the crumbs from the City of London's table doesn't seem so viable any more.

What can we sell to the world? How do we develop competitive advantages in different areas? What new industries and services are we going to invest in? What is the balance we are seeking to develop between private, state, municipal, not-for-profit and co-operative enterprise? Where is the seed money going to be sown to ensure our children a decent future? How do we change our patterns of settlement, work and travel to reflect a greener future?

It's not just about employment - you could, eventually, boost employment by attempting to put Humpty-Dumpty together again and restore the status quo ante model of political economy. I'd say that is the broadly shared aim of Tories, LibDems and New Labour. & that might work for a while - until the next speculative bubble came along.

Some say the world economy is on the cusp of a great change - the Long Wave view of history, Kondratievian or Schumpterian according to taste, suggests we might be entering a new period of upswing based on the wholesale adoption of a bundle of new technologies. This, some versions of the theory say, will mean a rebalancing of the importance of speculative Finance capital, actual industrial/IT capital - and the State. (I've blogged before about how Mike Davis sees this panning out in Obama's America). I haven't got the background in economics to assess such contentions - but I do think that this points to the fact that it is quite possible that if the Left fails to 'grab the future' by asking the sort of questions I've outlined, some other political current will.

It’s not just about employment. It’s about the future we want.

1 comment:

  1. I suppose you are right - two issues, unemployment and the future.

    Plus a third, who pays for it all.