Explaining the last ten years: Keynes or Marx – who is right?

The latest economic data from the major capitalist economies do not make pretty reading.  The global slowdown, as measured in real GDP growth, is worsening.  The first reading for real GDP growth in the US, for the first quarter of 2016, delivered an annualised rise of just 0.5%, or 0.125% quarter over quarter.  If we compare the size of the US economy after taking into account changes in prices (inflation), with the first quarter of 2015, then the American economy is larger by just 1.9%.  That’s the slowest rate of expansion since early 2014. The US economy, the best of the major capitalist economies, is still just crawling along.

US real GDP growth

There was only one of the top seven capitalist economies (G7) apart from the US that was growing by more than 2% at the end of 2015.  It was the UK.  Now in the first quarter of 2016, the UK reported an expansion of just 0.4%, so that the British economy was larger by 2.1% compared to the first quarter of 2015.  And most forecasters are expecting that growth rate to slip below 2% yoy in the current quarter we are now in (April to June).

In the first quarter of 2016, the Eurozone group of economies grew faster than the US or the UK!  The Euro area rose 0.55% compared to 0.4% in the UK and just 0.125% in the US. The EU region as a whole rose 0.5%.  For the first time, Eurozone GDP in real terms has returned to its peak before the Great Recession – but three years after the UK and six years after the US!  Compared to this time last year, Eurozone real GDP is up 1.53%. However, Eurozone growth has also slowed from 1.58% yoy in Q3 2015 to 1.55% in Q4 2015 and now 1.53%. It’s just that the US and the UK economies have slowed even more.

EZ real GDP

Now readers of my blog will know ad nauseam that this rate of growth in the major economies is an indication that the world economy remains in what I call a Long Depression (Jack Rasmus calls it an Epic Recession), where trend real growth is much lower than the long-term average and well below the rate of economic growth before the onset of the Great Recession in 2008-9.  The latest quarterly figures for real GDP growth do no more than confirm that thesis….

Mainstream economics is reluctant to accept this view.  Not only do the major official economic forecasters like the IMF, the OECD and EU Commission, after announcing yet another year of slow growth, keep forecasting a revival for the next year, but the consensus view is that the slowdown will end and growth will recover.

For example, Keynesian economist and former chief economist at Goldman Sachs,Gavyn Davies, now runs a forecasting agency, Fulcrum.  Fulcrum and Davies told readers of the FT this week that, although real GDP figures are looking bad, GDP data look backwards, not forwards.  And looking forward, things are getting better.  Apparently, global activity is now only just below trend growth of 3.6% a year and the world economy has “again stepped back from the brink of outright recession”.  So not to worry.

Moreover, there has been a move to dismiss the validity of the idea of GDP altogether as an indicator of prosperity or the health of the capitalist economy.  The Economist magazine presented all the well-versed arguments for the weaknesses in the measurement of an economy using GDP: it does not measure the value of financial services properly, or the quality of new output and the gains of the new ‘disruptive technologies’ etc.

Many of these arguments may be right.  But it is no accident that theEconomist wishes to dismiss the GDP measure only when it produces depressing results for capitalism.  And GDP does provide a reasonable benchmark for ‘economic change’ over the long term, if not for ‘economic welfare’, i.e. the value and quality of living for the average person.

So if we work with the GDP data as we have it, we find confirmation of my view that we are in a Long Depression.  The best measure of this, in my view, is real GDP (i.e. after inflation) per person.  Real GDP per capita takes into account any expansion of population that would explain some growth in GDP just because of more people.  This applies to countries like the UK where immigration from Europe has been considerable in the last ten years.

After a look at the data,I found that between 1998 and 2006, average annual growth in real GDP per person was much higher (1.5-2% a year) than between 2007 to now (under 0.5% a year) in all the major advanced capitalist economies.  The change was particularly sharp in the US, the UK and the Eurozone, but less so in Japan (where the population has been falling).  In Italy, real GDP per head has been negative since 2007 and France almost zero.  So for nearly ten years, real GDP growth has been depressed way below previous averages.

G7 real GDP per cap growth

In a recent post on his blogsite, British Keynesian economist, Simon Wren Lewis, now an adviser to the British opposition Labour Party, put up the question: how do we explain the last ten years of slow growth or depression?….



Read the full article here: Explaining the last ten years: Keynes or Marx – who is right? | Michael Roberts Blog

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