The second Great Depression

If today's projections are right, this will be the longest-lasting recession in a century.

Thankfully, the MPC did the right thing and kept rates on hold, in contrast to the ECB, which raised rates to 1.5 per cent. There is no evidence in either the UK or the euro area of a wage-price spiral emerging and inflation is expected to fall in the euro area, as the effects of the recent oil and commodity price increases drop out. Therefore, the ECB's move looks to be a classic policy error, as this will exacerbate the growth problems experienced by all countries.

As background, I looked at the latest data from Eurostat and plotted data on wages, inflation and changes in producer prices, which are presented below. What stands out is that there is no evidence of substantial increases in nominal hourly wage costs in any country; the highest increase is a paltry 3.8 per cent in France. Greece has seen a fall of 6.8 per cent. For the euro area, the average is 2.6 per cent and it is 2.1 per cent in the UK. The story is similar on inflation, which did not increase at all in the euro area over the past month and fell in five countries including Germany. Producer prices fell by 0.2 per cent in the euro area and in nine of the 17 euro area countries. What inflation? As I said, the ECB has made a major policy error, just as it did in July 2008 when it raised rates. This move to raise rates is madness, as it will lower growth in the euro area. Well done, MPC.

 

Another piece of evidence supporting the MPC's decision to sit tight was NIESR's latest forecast for the UK economy, published today. Although I think it should have done more quantitative easing (QE) as the economy is slowing -- but that is for another day.

Buried in the data is a potential bombshell for George "Slasher" Osborne. NIESR's monthly estimates of GDP suggest that output grew by only 0.1 per cent in the three months ending in June after growth of 0.5 per cent in the three months ending in May. In part, this was because the effects of one-off events in April have depressed the overall quarterly growth rate. However, even accounting for these factors, the underlying rate of growth NIESR believes is still likely to be weak. This compares with the OBR's forecast of 0.8 per cent.

Commenting on the forecast, Simon Kirby at NIESR argued that: "Economic growth in the UK continues to be subdued. In our April forecast, we expected growth to pick up in the second half of this year to around 0.5 per cent per quarter. We expect the domestic economy to contract throughout this year, leaving net exports as the major positive contributor to economic growth. There will continue to be much talk of continued economic growth over the coming months but it certainly won't feel like it to most people. As with any forecast, there is uncertainty and risk around the outlook. At present, the risks to growth are firmly balanced on the downside."

NIESR goes on to argue in its report that: "These figures do not provide a picture of economic growth that would support a tightening of monetary policy at this juncture." This is a not-too-subtle dig at NIESR's previous director Martin Weale, who left to join the MPC in August 2010 and has voted for rate increases over the past six meetings and presumably did so again today. His recent claim that raising rates now means that they won't have to be increased as much in the future is abject nonsense with no basis in economics or common sense.

The biggest news in the NIESR forecast is contained in the attached graph. This shows for the current recession and the 1970s, 1980s, 1990s, as well as the 1930s, the extent of the drop in output measured on the vertical axis and the length of time it takes for output to be restored. In the 1970s, recession output fell by 4 per cent and it took 36 months for output to get back to its starting level. In contrast, in the 1980s, output dropped 6 per cent and took 48 months to be restored. In the 1930s, output dropped by 6 per cent with a double-dip in the middle and also took 48 months to be restored.

GDP 

NIESR has kindly provided me with an updated version to the one it published, which also contains estimates of when the recession will be over, measured by the point at which output will reach the level it was at the start of the recession in 2008. That is the black diamond on the right of the graph. This suggests NIESR believes that this recession will be the longest-lasting in a century and output will not be restored for at least five years. This is based on NIESR's forecast for April but, given Simon Kirby's view that the risks are to the downside and the Q2 2011 forecast, then recovery could well take even longer than that. NIESR is, for example, forecasting growth of 0.5 per cent in both Q3 2010 and Q4 2010, which does look overly optimistic.

If NIESR is right, Osborne's policies will be responsible for the worst recession in a century -- and maybe it should be named the "Second Great Depression". This suggests an economic policy U-turn on the fiscal front must be in the offing. It also raises the prospect of the MPC doing more QE before the end of the year.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

Photo: Getty
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No, the battle in Momentum isn't about young against old

Jon Lansman and his allies' narrative doesn't add up, argues Rida Vaquas.

If you examined the recent coverage around Momentum, you’d be forgiven for thinking that it was headed towards an acrimonious split, judging by the vitriol, paranoia and lurid accusations that have appeared online in the last couple days. You’d also be forgiven for thinking that this divide was between a Trotskyist old guard who can’t countenance new ways of working, and hip youngsters who are filled with idealism and better at memes. You might then be incredibly bemused as to how the Trotskyists Momentum was keen to deny existed over the summer have suddenly come to the brink of launching a ‘takeover bid’.

However these accounts, whatever intentions or frustrations that they are driven by, largely misrepresent the dispute within Momentum and what transpired at the now infamous National Committee meeting last Saturday.

In the first instance, ‘young people’ are by no means universally on the side of e-democracy as embodied by the MxV online platform, nor did all young people at the National Committee vote for Jon Lansman’s proposal which would make this platform the essential method of deciding Momentum policy.

Being on National Committee as the representative from Red Labour, I spoke in favour of a conference with delegates from local groups, believing this is the best way to ensure local groups are at the forefront of what we do as an organisation.

I was nineteen years old then. Unfortunately speaking and voting in favour of a delegates based conference has morphed me into a Trotskyist sectarian from the 1970s, aging me by over thirty years.

Moreover I was by no means the only young person in favour of this, Josie Runswick (LGBT+ representative) and the Scottish delegates Martyn Cook and Lauren Gilmour are all under thirty and all voted for a delegates based national conference. I say this to highlight that the caricature of an intergenerational war between the old and the new is precisely that: a caricature bearing little relation to a much more nuanced reality.

Furthermore, I believe that many people who voted for a delegates-based conference would be rather astounded to find themselves described as Trotskyists. I do not deny that there are Trotskyists on National Committee, nor do I deny that Trotskyists supported a delegates-based conference – that is an open position of theirs. What I do object is a characterisation of the 32 delegates who voted for a delegates-based conference as Trotskyists, or at best, gullible fools who’ve been taken in.  Many regional delegates were mandated by the people to whom they are accountable to support a national conference based on this democratic model, following broad and free political discussion within their regions. As thrilling as it might be to fantasise about a sinister plot driven by the shadow emperors of the hard Left against all that it is sensible and moderate in Momentum, the truth is rather more mundane. Jon Lansman and his supporters failed to convince people in local groups of the merits of his e-democracy proposal, and as a result lost the vote.

I do not think that Momentum is doomed to fail on account of the particular details of our internal structures, providing that there is democracy, accountability and grassroots participation embedded into it. I do not think Momentum is doomed to fail the moment Jon Lansman, however much respect I have for him, loses a vote. I do not even think Momentum is doomed to fail if Trotskyists are involved, or even win sometimes, if they make their case openly and convince others of their ideas in the structures available.

The existential threat that Momentum faces is none of these things, it is the propagation of a toxic and polarised political culture based on cliques and personal loyalties as opposed to genuine political discussion on how we can transform labour movement and transform society. It is a political culture in which those opposed to you in the organisation are treated as alien invaders hell-bent on destroying it, even when we’ve worked together to build it up, and we worked together before the Corbyn moment even happened. It is a political culture where members drag others through the mud, using the rhetoric of the Right that’s been used to attack all of us, on social and national media and lend their tacit support to witch hunts that saw thousands of Labour members and supporters barred from voting in the summer. It is ultimately a political culture in which our trust in each other and capacity to work together on is irreparably eroded.

We have a tremendous task facing us: to fight for a socialist alternative in a global context where far right populism is rapidly accruing victories; to fight for the Labour Party to win governmental power; to fight for a world in which working class people have the power to collectively change their lives and change the societies we live in. In short: there is an urgent need to get our act together. This will not be accomplished by sniping about ‘saboteurs’ but by debating the kind of politics we want clearly and openly, and then coming together to campaign from a grassroots level upwards.

Rida Vaquas is Red Labour Representative on Momentum National Committee.