Posts Tagged ‘Non-Inflationary Continuous Expansion’

The root causes of today’s problems go back further than the crash and require structural economic change

29/09/2012, 06:22:58 PM

by Jonathan Todd

We continue to live through the hangover from what Mervyn King called the NICE decade – non-inflationary continuous expansion. Just like all hangovers what we are living through is consequence of what came before. The supposed NICE decade was always pregnant with the nastiness of now.

This nastiness includes growth that is so feeble that GDP remains 4 per cent below its 2008 peak; a longer contradiction in growth than the notoriously grim 1930s; youth unemployment worse than in the 1980s; and an unprecedented incomes squeeze. It’s hurting but it’s not working: we’re told this is all the price for reducing the deficit but government borrowing is on the rise.

In what senses was the NICE decade pregnant with this nastiness?

Outside of London real median wages began to stagnate in 2003. The level of investment in the real economy was also weak over this period. Public finances became increasingly dependent on one sector of the economy (finance, obviously). The problem of youth unemployment, as David Miliband says, didn’t originate with this government but they made it worse. That can be said for other kinds of nastiness as well.

What was happening in the financial sector – the credit that it extended to households allowing them to live lives their incomes could no longer sustain; the taxes and bond purchases that it provided to government enabling them to spend more than otherwise – disguised the scale and extent of the structural problems with median wages, investment in the real economy, public finances, and youth unemployment.

We’ve transitioned from a “let them eat debt” era into a protracted period of public and private deleveraging and as we’ve done so, the structural problems have become more apparent and more pronounced – but they haven’t been created; they were always there.


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