Larry Summers reminds Osborne that the UK economy is still smaller than before the crash

The former US treasury secretary points out to the Chancellor that while the US economy exceeded its pre-recession peak years ago, the UK is still catching up.

At the end of a week in which the Tories have become ever more boastful of their economic record, Keynesian lion Larry Summers delivered some hard truths to George Osborne at Davos this morning.

Summers, who served as treasury secretary to Bill Clinton and as director of Barack Obama's National Economic Council, rightly noted that, more than five years on from the crash, UK GDP remains below its pre-recession peak. He said (from 1:10 onwards): 

If you compare the United States and Britain, it was a couple of years ago that we exceeded our previous peak GDP, that’s something that is still being sought in Britain.

Indeed, while US GDP is now 5.6 per cent above its pre-crisis level (thanks in part to greater fiscal stimulus), UK GDP is 2 per cent smaller than in 2008. 

To this, Osborne responded by pointing out that the recession was deeper in the UK than in the US. He said: "We did have a much deeper fall in GDP and, for a banking sector that is the same size as the US’s, in an economy a fifth or sixth of the size, the impact of the financial crisis was even greater in the United Kingdom than it was in the States. The great recession in the UK had an even greater effect and we were one of the worst affected of any of the major western economies.

But as Summers (who is working with Ed Balls, his former Harvard pupil, on a transatlantic commission on "inclusive prosperity") smartly retorted:

The deeper the valley you are in, the more rapidly you are able to grow. 

It's also worth buying this week's NS to read Felix Martin on this subject. Here's an extract: 

When I first started out on the bond markets, an older and wiser colleague took it upon himself to warn me of the pitfalls of dealing with unscrupulous brokers. “Watch out for salesmen selling recovery stories,” he advised. “Never forget the definition of a bond that was down 50 per cent and then recovered 50 per cent. It’s a bond that has lost 25 per cent.” I can’t help thinking of this homely piece of wisdom every time I read another story about the UK’s loudly hailed recent recovery.

It is true that the UK’s gross domestic product (GDP) grew by nearly 2 per cent in the four quarters to September 2013, compared to barely more than 1 per cent over the whole two years before that.

The trouble is that this still left the economy nearly 2 per cent smaller than it was at the end of 2007 – more than six years ago. As my former colleague pointed out: when there’s been a precipitous crash, you need to pay attention to levels of growth as well as growth rates if you want to avoid bamboozlement by sales pitches.

Former US treasury secretary Larry Summers addresses the Wall Street Journal CEO Council on November 19, 2013 in Washington, DC. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Lord Sainsbury pulls funding from Progress and other political causes

The longstanding Labour donor will no longer fund party political causes. 

Centrist Labour MPs face a funding gap for their ideas after the longstanding Labour donor Lord Sainsbury announced he will stop financing party political causes.

Sainsbury, who served as a New Labour minister and also donated to the Liberal Democrats, is instead concentrating on charitable causes. 

Lord Sainsbury funded the centrist organisation Progress, dubbed the “original Blairite pressure group”, which was founded in mid Nineties and provided the intellectual underpinnings of New Labour.

The former supermarket boss is understood to still fund Policy Network, an international thinktank headed by New Labour veteran Peter Mandelson.

He has also funded the Remain campaign group Britain Stronger in Europe. The latter reinvented itself as Open Britain after the Leave vote, and has campaigned for a softer Brexit. Its supporters include former Lib Dem leader Nick Clegg and Labour's Chuka Umunna, and it now relies on grassroots funding.

Sainsbury said he wished to “hand the baton on to a new generation of donors” who supported progressive politics. 

Progress director Richard Angell said: “Progress is extremely grateful to Lord Sainsbury for the funding he has provided for over two decades. We always knew it would not last forever.”

The organisation has raised a third of its funding target from other donors, but is now appealing for financial support from Labour supporters. Its aims include “stopping a hard-left take over” of the Labour party and “renewing the ideas of the centre-left”. 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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