no escape from UK depression

Martin Wolf notes that the UK economy continues to be depressed, despite because of fiscal austerity.

The current UK depression will be the longest since at least the first world war. Without a dramatic surge in growth, it is also quite likely to generate a bigger cumulative loss of output than the “great depression”. ….

This … is a huge depression, by UK standards. Yet the response is a shrug of the shoulders. The view seems to be that this calamity was inevitable, deserved, or both. True, the cushion of the modern welfare state has made this a much less traumatic shock than the depressions of the interwar years. The superior employment performance compared with the early 1980s has also made this less painful than that slump. Even so, the scale and duration of this depression has been shocking. ….

The characteristic of this depression, compared with its predecessors, is the frightening weakness of the recovery phase. It is far more plausible that this is due to weakness in demand than a collapse in potential supply.

Martin Wolf, “Britain must escape its longest depression“, Financial Times, 2 September 2011.

Martin defines depression as “the period while output is below its initial level”. Even if UK growth were to jump to an annual rate of 4%, the depression would continue for another year, making it the longest one of the past century. Recession is defined as a period of negative growth, so the  though the UK economy is not technically in recession, even though it is still in depression. As for the depth of the depression – defined as cumulative loss of GDP – the depth of the current UK depression will soon surpass that of the great depression of 1930-1933.

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