Growth? What growth?

Mark Wadsworth Fri Mar 28, 2008 at 10:31:23 PM GMT Print-friendly version Facebook

If you think about it for a bit and grind the numbers, real growth in the UK economy has only been about 1% a year for the last ten years.



Time for some fun with numbers:

1. Nominal GDP in 1996-97 was £778.7 bn.

2. Total nominal GDP for the ten years 1997-98 to 2006-07 was £10,592 bn.

3. If we'd had no real growth whatsover since 1996-97, i.e. if GDP had merely increased in line with RPI, total GDP in the same ten-year period would have been £8,992. So 'extra' GDP was £1,600 bn.

4. Household debts increased from £500 bn to £1,325 bn between May 1997 and April 2007.

5. Nominal government gross debt increased from £401 bn to £574 bn over the same period, chuck in another £50 bn for latent PFI & Northern Rock liabilities, that's an increase of £223 bn.

6. So two-thirds of that 'extra' GDP of £1,600 bn was financed purely out of additional household and government borrowing of £1,048 bn**.

Sure, for every liability, there is an asset (so net borrowings minus savings always nets off to nothing). But that's not much consolation for the 95,000 families whose homes were subject to repossession orders last year; future taxpayers who are going to have to pay off this borrowing binge or depositors at banks who can't get their money back.

* Figures from www.hm-treasury.gov.uk/media/B/1/pfd220208.xls.

** So true 'extra' GDP over the last ten years was £552 bn. Which is equivalent to an annual £10 bn increase in GDP for ten years (£10 + £20 + £30 ... £100 = £550) or an average of about 1% economic growth.



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Growth? What growth? | 9 comments (9 topical)

Re: Growth? What growth? (#1)

by rwendland on Sat Mar 29, 2008 at 03:38:06 PM GMT

This is way too complex for back-of-envelope calculations Mark.

If the increase in household borrowing was spent on pink fluffy toys made in China and foreign holidays would it have significant impact on UK GDP?

You count borrowings but not savings (including pensions). I expect savings went up due to inflation as well.

You omit commercial borrowing - if you did I suspect this analysis would conclude negative real UK growth.

This is just way too simplistic. But I do agree that the unwinding of excessive borrowing, especially from over-leveraged commercial lending, looks like it will be painful. But I like to think the main fault (greed) for that lies in New York & Washington rather than London! But the way the Pound is sliding with the Dollar suggests the rest of the world thinks London was as bad as New York on this.

NB interesting to see Irwin Stelzer write "The era of free-market, no-government-intervention purists is over". Times oh-so-surely have changed.


Re: Growth? What growth? (#2)

by Mark Wadsworth on Sat Mar 29, 2008 at 06:54:54 PM GMT

Re pink fluffy toys, that is a fair question, but the point is that GDP is measured in at least two ways, total income and total expenditure. If spending on pink fluffy toys is included in expenditure, then it is included. (Or would that only be included in GNP?)

As a counter-example, I could tell Her Indoors that I had a massive pay rise and buy a new car and holidays and stuff, she might well be happy with this until the bailiffs come along and repossess the house. 

Debts always came back to haunt you/us with a vengeance!


Re: Growth? What growth? (#3)

by alexhilton on Mon Mar 31, 2008 at 01:30:52 AM GMT

could you extend your analysis back another 18 years?


[ Parent ]

Re: Growth? What growth? (#4)

by rwendland on Mon Mar 31, 2008 at 08:17:39 PM GMT

> If spending on [imported] pink fluffy toys is included in expenditure, then it is included.

You must know that imports aren't in GDP:

    GDP = consumption + gross_investment + government_spending + (exports - imports)

But that does raise the interesting issue of how multinationals can artificialy affect a country's GDP by transfer-pricing. Pink Fluffy Megacorp can choose the import price to place most profit in either its Chinese or UK subsidiary, to optimise tax, but as a side-effect changing the UK's GDP without any change in the real economy (which GDP hopes to reflect). Show's how you have to be careful with economics!


[ Parent ]

Re: Growth? What growth? (#5)

by stewrigh on Mon Mar 31, 2008 at 09:10:05 PM GMT

Hey come on you can't be surprised - we've had a Labour government for all that time.
What do you expect.


Re: Growth? What growth? (#6)

by rwendland on Mon Mar 31, 2008 at 10:00:56 PM GMT

Care to colour in the Tory & Labour periods of office on the following chart?

GDP in US dollars Yep, the UK is in that nice shade of red! (I do agree the £ and $ slide the last few months will have recovered France & Germany's position, but not the US.)


[ Parent ]

Re: Growth? What growth? (#7)

by AlanJi on Mon Mar 31, 2008 at 10:13:35 PM GMT

I've heard of Marc Wadsworth, but who is Mark Wadsworth?


[ Parent ]

Re: Growth? What growth? (#8)

by Mark Wadsworth on Fri Apr 04, 2008 at 02:31:25 PM GMT

I'm just some chap.


[ Parent ]

Re: Growth? What growth? (#9)

by Mark Wadsworth on Fri Apr 04, 2008 at 02:39:33 PM GMT

What have the Tories got to do with Labour's economic policies?

That chart is probably meaningless as it appears to be done at market exchange rates - does it not strike you how straight the US line is? If that chart is indeed an accurate reflection of rising wealth, then shouldn't we be doing what the US is doing (whatever that is), that looks like 'stable and sustainable' growth to me.


Plus, to be fair, there was real bad stuff going on 1979 - 1993, oil crises, the Cold War (remember that one?), unions going on strike all the time, lumbering loss making nationalised industries to be privatised, German re-unification and high interest rates. And a late 1980s housing bubble that was indeed entirely the Tories' fault, just like this bubble is entirely Labour's fault.


Since 1993 or so we have had the NICE period (non-inflationary, continuous expansion). A child of 5 could have run the economy properly.


[ Parent ]

Growth? What growth? | 9 comments (9 topical)